In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate ofreturn on Apex was rд = 3.7%. The rate of return on Bpex was only r = 3.1%. The market today responded to very encouraging newsabout the unemployment rate, and = 3.4%. The historical relationship between returns on these stocks and the market portfolio hasbeen estimated from index model regressions as:Apex: A = 0.4% + 1.4rMBpex: rB = -0.1% + 0.7rMa. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.)ApexBpexPredicted Returns%%

As per index model regression ,Relationship between expected return and beta is as follows:-Rs =…

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra = 3.7%. The rate of return on Bpex was only rB = 3.1%. The market today responded to very encouraging news about the unemployment rate, and M= 3.4%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A 0.48 + 1.4rM Bpex: rg = -0.1% + 0.7rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Врех Predicted Returns % %

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra = 3.7%. The rate of return on Bpex was only rB = 3.1%. The market today responded to very encouraging news about the unemployment rate, and M= 3.4%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A 0.48 + 1.4rM Bpex: rg = -0.1% + 0.7rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Врех Predicted Returns % %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Suppose that Federal Reserve actions have caused an increase in the risk-free rate, rRF. Meanwhile, investors are afraid of a recession, so the market risk premium, (rM − rRF), has increased. Under these conditions, with other things held constant, which of the following statements is most correct? a. The required return on all stocks would increase, but the increase would be greatest for stocks with betas of less than 1.0. b. Stocks' required returns would change, but so would expected returns, and the result would be no change in stocks' prices. c. The prices of all stocks would decline, but the decline would be greatest for high-beta stocks. d. The prices of all stocks would increase, but the increase would be greatest for high-beta stocks. e. The required return on all stocks would increase by the same amount.
An analyst has modeled the stock of a company using the Fama - French three - factor model. The market return is 8 %, the return on the SMB portfolio ( rSMB) is 2.8%, and the return on the HML portfolio (rHML) is 5.6 %. If ai = 0, bi = 1.2, ci = -0.4, and di = 1.3, what is the stock's predicted return? Do not round intermediate calculations. Round your answer to two decimal places. %
In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rA = 3.1%. The rate of return on Bpex was only rB = 2.5%. The market today responded to very encouraging news about the unemployment rate, and rM = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as:Apex: rA = .2% + 1.4rM Bpex: rB = −.1% + .6rMOn the basis of these data, which company do you think won the lawsuit?
An index model regression applied to past monthly returns in Ford’s stock price produces the following estimates, which are believed to be stable over time: rF = 0.1% + 1.1rM If the market index subsequently rises by 10.2% and Ford’s stock price rises by 10%, what is the abnormal change in Ford’s stock price? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)
In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rд = 3.2%. The rate of return on Bpex was only r = 2.6%. The market today responded to very encouraging news about the unemployment rate, and = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A = 0.5% + 1.6rM Bpex: r = -0.1% +0.4rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Bpex Predicted Returns % % b. Which company do you think won the lawsuit? Apex O Bpex
A challenge we run into when forecasting future stock returns is that stock returns compound. So, when using historical averages to forecast the future, we need to average together the arithmetic and geometric average returns using Blume's Formula: R(T) = T GeoAvg + NT Arith Avg N-1 In this formula, N is the number of historical annual returns you are using to calculate your averages and T is the number of future annual returns you are forecasting. Suppose you gather the following prices for a stock in order to calculate the last 10 (N = 10) annual returns. The stock does not pay dividends. Time 0 1 Time 0 calculate the last 10 (N=10) annual returns. The stock does not pay dividends. 1 2 3 4 5 10 6 . 7 8 9 10 Price $23.16 $32.81 Price $23.16 $32.81 $33.63 $36.83 $41.95 $41.04 $33.83 $37.45 $30.56 $29.90 $47.93 Using Blume's formula, what is the expected return per year for the next 4 years (T = 4)? Enter your answer as a percentage, rounded to the nearest 0.0001. For example, for…
Consider the following information on Stocks I and II: Probability of State of Economy State of Economy Rate of Return if State Occurs Stock I Stock II Recession .22 .045 -.37 Normal .62 .355 .29 Irrational .16 exuberance .215 .47 The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent. a. Calculate the beta and standard deviation of Stock I. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. b. Calculate the beta and standard deviation of Stock II. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"? a. Beta Standard deviation b. Beta Standard deviation c. Most systematic risk d. Most unsystematic risk e. "Riskier" stock 1.94 % %
The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2,1% over the coming month. Beta 1.4 Standard Deviation R- of Residuals square 0.65 0.1 (i.e., 10% monthly) Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.5 instead of 1.4. The standard deviation of the monthly market rate of return is 9%. If he holds a $5,000,000 portfolio of Waterworks stock. The S&P 500 currently is at 2,000 and the contract multiplier is $50. a. What is the standard deviation of the (now improperly) hedged portfolio? (Round your answer to 3 decimal places.) Standard deviation % b. What is the probability of incurring a loss on improperly hedged portfolio over the next month if the monthly market return has an expected value of 1% and a standard deviation of 9%? The manager holds a $5 million portfolio of Waterworks…
An analyst who believes in the Treynor Black Model has identified one active stock, stock A, which he/she wants to combine with the passive Market Index M to form their firm's optimal risky portfolio. A regression of the excess returns of stock A on the excess returns of the market index M, have discovered that stock A's alpha is 4%, its beta is 2.0, and the residual standard deviation of the error term for stock A is 18%. The standard deviation for the market index M is 14%, the expected return on M is 11%, the risk-free rate of return is 3%, and the expected return on stock A is 22%. What is the Sharpe Ratio for the optimal risky portfolio formed by the optimal combination of the active stock A with the passive market index M? Note that the Sharpe Ratio is usually expressed as a decimal.
You are using the CAPM to calculate a fair return for Stardust common stock. The shares have a volatility of 28.00%, while the market has a volatility of 15.00%. The correlation between the two sets of returns is 0.3. The risk free rate is 2.60%, while the expected return on the market is 4.80%. What is the fair return for Stardust common stock?
If a stock's expected return plots on or above the SML, then the stock's return is SML, the stock's return is to compensate the investor for risk. cent to compensate the investor for risk. If a stock's expected return plots below the The SML line can change due to expected Inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up or down parallel to the old SML. If risk aversion changes, then the SML plotted on a graph will rotate up or down becoming more or less steep if investors become more or less risk averse. A firm can influence market risk (hence its beta coefficient) through changes in the composition of its assets and through changes in the amount of debt it uses. Quantitative Problem: You are given the following information for Wine and Cork Enterprises (WCE): Tar 4%; 10 % ; RPM 6%, and beta - 1.1 What is WCE's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. -75 % If inflation…
You are using the CAPM to calculate a fair return for Stardust common stock. The shares have a volatility of 36.00%, while the market has a volatility of 19.00%. The correlation between the two sets of returns is 0.30. The risk free rate is 1.00%, while the expected return on the market is 3.90%. What is the fair return for Stardust common stock?

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