Stock A's returns the past 5 years have been 10%, -15%, 35%, 10%, and -20%. Stock B's returns have been -5%, 1%, -4%, 40%, and 30%. What is the correlation coefficient for returns between Stock A and Stock B7 (-0.35)
Stock A's returns the past 5 years have been 10%, -15%, 35%, 10%, and -20%. Stock B's returns have been -5%, 1%, -4%, 40%, and 30%. What is the correlation coefficient for returns between Stock A and Stock B7 (-0.35)
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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![Stock A's returns the past 5 years have been 10%,-15%, 35%, 10%,
and -20%. Stock B's returns have been -5%, 1%, -4%, 40%, and
30%. What is the correlation coefficient for returns between Stock
A and Stock B7 (-0.35)
-6 The Relevant Risk of a Stock: The
Capital Asset Pricing Model (CAPM)
e assume that investors are risk averse and demand a premium for bearing risk;
at is, the higher the risk of a security, the higher its expected return must be to
duce investors to buy it or to hold it. All risk except that related to broad market
ovements can, and presumably will, be diversified away. After all, why accept risk
at can be eliminated easily? This implies that investors are primarily concerned
th the risk of their portfolios rather than the risk of the individual securities in the
rtfolio. How, then, should the risk of an individual stock be measured?
The Capital Asset Pricing Model (CAPM) provides one answer to that question.
stock might be quite risky if held by itself, but-because diversification eliminates
out half of its risk-the stock's relevant risk is its contribution to a well-diversified
O REDMI NOTE 9 PRO
rijcoS AT QUAD CAMERA much smaller than the stock's stand-alone risk."](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcfca4852-7671-41d2-91c7-45f6de6b4a07%2Ff09d62a5-2a97-4601-940b-99bed67438aa%2F7exd9me_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Stock A's returns the past 5 years have been 10%,-15%, 35%, 10%,
and -20%. Stock B's returns have been -5%, 1%, -4%, 40%, and
30%. What is the correlation coefficient for returns between Stock
A and Stock B7 (-0.35)
-6 The Relevant Risk of a Stock: The
Capital Asset Pricing Model (CAPM)
e assume that investors are risk averse and demand a premium for bearing risk;
at is, the higher the risk of a security, the higher its expected return must be to
duce investors to buy it or to hold it. All risk except that related to broad market
ovements can, and presumably will, be diversified away. After all, why accept risk
at can be eliminated easily? This implies that investors are primarily concerned
th the risk of their portfolios rather than the risk of the individual securities in the
rtfolio. How, then, should the risk of an individual stock be measured?
The Capital Asset Pricing Model (CAPM) provides one answer to that question.
stock might be quite risky if held by itself, but-because diversification eliminates
out half of its risk-the stock's relevant risk is its contribution to a well-diversified
O REDMI NOTE 9 PRO
rijcoS AT QUAD CAMERA much smaller than the stock's stand-alone risk."
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