P8-2 Risk versus Return Rank the following three stocks by their risk-return relationship, best to worst. Middle Road has an average return of 15 percent and standard deviation of 33 percent. The average return and standard deviation of Play Safe are 10 percent and 20 percent, respectively; and for Risk Taker are 22 percent and 55 percent.

P8-2 Risk versus Return Rank the following three stocks by their risk-return relationship, best to worst. Middle Road has an average return of 15 percent and standard deviation of 33 percent. The average return and standard deviation of Play Safe are 10 percent and 20 percent, respectively; and for Risk Taker are 22 percent and 55 percent.

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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Use the following data to answer the question regarding the performance of Guardian Stock Fund and the market portfolio. The risk- free return during the sample period was 5%. Average return Standard deviation of returns Beta Residual standard deviation Guardian 14% 26% 1.2 0.60 X 4% Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.) Answer is complete but not entirely correct. Information ratio Market Portfolio 10% 21% 1 0%
Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? Stock A Stock B Market Standard Deviation Return 30% 30% 22% Correlation Coefficient between A & M -30% Correlation Coefficient between B & M 30% Expected Market Return 11% Risk-Free rate of return 5%
man.1
1 The information regarding the risk level of three different stocks is presented below. 1. Which stock has the highest level of risk? Interpret the beta of that stock. 2. Which stock has the level of risk that is closest to the market level of risk? How do we measure the market level of risk? Beta Standard Deviation Flylnc 2.1 15.8% Airco 1.1 17.3% SkyCorp 0.8 21.5%
Am. 340.
Consider two stocks, Stock D, with an expected return of 13 percent and a standard deviation of 28 percent, and Stock I, an international company, with an expected return of 16 percent and a standard deviation of 38 percent. The correlation between the two stocks is -0.1. What is the weight of stock D in the minimum variance portfolio?
Milliken uses a digitally controlled dyer for placing intricate patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. Its market value will be $310,000 at the end of the 1st year and drop by $44,000 per year thereafter to a minimum of $30,000. Operating costs are $20,000 the 1st year, increasing by 7% per year. Maintenance costs are only $8,000 the 1st year but will increase by 37% each year thereafter. Milliken’s MARR is 20%. Determine the optimum replacement interval (years) for the dyer
Refer to the table below: 3 Doors, Inc. Down Co. Expected return, E(R) Standard deviation, o Correlation 15% 10% 30 18 0.39 Using the Information provided on the two stocks in the table above, find the expected return and standard deviation on the minimum variance portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return % Standard deviation %
ou are examining three different shares. Share A has expected return 5.40%, beta 0.41, and volatility 11.00%. Share B has expected return 6.90%, beta 0.67, and volatility 23.00%. Finally, share C has expected return 7.10%, beta 0.65, and volatility 22.00%. The risk free rate is 2.90%, while the market price of risk is 7.40%. According to the CAPM, which share is undervalued? A B C None of the shares is undervalued
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The following table shows estimates of the risk of two well-known Canadian stocks: Standard Deviation (%) R2raise to the power of 2 Beta Standard Error of Beta Sun Life Financial 25.7 0.19 0.93 0.12 Suncor Energy 26.5 0.02 0.70 0.27 What proportion of each stock’s risk was market risk, and what proportion was specific risk? What is the variance of the returns for Sun Life Financial stock? What is the specific variance? What is the confidence interval on Suncor’s beta? If the CAPM is correct, what is the expected return on Sun Life? Assume a risk-free interest rate of 4% and an expected market return of 14%. Suppose that next year, the market provides a 14% return. Knowing this, what return would you expect from Sun Life?
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