stock’s contribution to the market risk of a well-diversified portfolio is called Q1. ______risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Q2. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Over time, a stock with a beta of 1.0 produces a return that goes up and down with a 1:1 relationship with the return on the market. Beta measures the volatility in st

Q: Suppose that stocks are exposed to independent risks only so that stock has the following return…

A: Return from the Portfolio is given by Ri,t =mi+si,t where Ri,t= return on the portfolio           mi…

Q: Use the information in the table below to estimate the beta of the portfolio. Round your final…

A: Value of stock is calculated as Value of stock = Number of shares×Price per stock Value of stock T =…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Covariance measures the directional relationship between the returns of 2 securities.The positive…

Q: what must the beta be for the other stock in your portfolio?

A: The beta of a portfolio helps measure the portfolio's systematic risk. The portfolio beta is…

Q: From the following information, calculate covariance between stocks A and B and expected return and…

A: Correlation between A and B = 0.65 Weight of A in portfolio = 50% Weight of B in portfolio = 50%…

Q: Excel Online Structured Activity: CAPM, portfolio risk, and return Consider the following…

A: The capital asset pricing model (CAPM) tries to estimate how much you can expect to earn given the…

Q: 1. What are beta measures? (a) The volatility of the security (b) The joint volatility of any two…

A: Beta helps in measuring the systematic risk of a security or portfolio compared to the market as a…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: ParticularsStock AStock BBeta0.700.90R-square0.200.15σM22%

Q: How to start this question? g) Use the following two stocks. Scenario Probability Stock A Stock B…

A: Stock A:    Stock B:

Q: Consider a world that only consists of the three stocks shown in the following table: a. Calculate…

A: Stock Total Number of shares outstandingCurrent Price per shareExpected returnFirst Bank…

Q: c. Calculate each stock's required rate of return. Round your answers to two decimal places. rx = X%…

A: Coefficient of variation = Standard deviation/Mean Required rate of return as per CAPM equstion =…

Q: The expected returns for David’s portfolio were calculated based on three possible conditions in the…

A: Standard deviation is a measure of unsystematic risk which shows the variability of returns of a…

Q: Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free…

A: On Risk free portfolio:WA= Weight of Stock A.WA = SDB / SDA + SDB..= 55 / 45 + 55.= 0.55Thus, WB= 1-…

Q: Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free…

A: The risk-free rate, also known as the risk-free interest rate or risk-free return, refers to the…

Q: 1. Beta is positively related A. the degree of correlation between a stock's return and the market…

A: Risk is a predictable loss or uncertainty that may happen and may not happen. The business owner and…

Q: Consider the following table, which gives a security analyst's expected return on two stocks in two…

A: Given:Market rateAggressive stock Defensive stock 7%-4%4%23%37%11%Risk-free rate4%

Q: The table below contains the covariance matrix of stock returns and the market. Assume that the…

A: Risk is the possibility of loss for an organization and risk management is one of the most important…

Q: Using the spreadsheet answer question (c) please

A: Given,  Volatility of the market = 10% Expected Return = 8% Risk-free rate = 3%

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Stock A:Beta = 1.1R-square = 0.29Stock B:Beta = 1.2R-square = 0.14σM = 29%

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: The term "risk-free rate" refers to the rate of return on an investment that is assumed to have no…

Q: Questions: a. Compute the expected return for stock X and for stock Y b. Compute the standard…

A: Expected returns refer to a profit or loss that is attained by the investor over the investment. It…

Q: The stock market can have three potential returns with the following probabilities. Note "otherwise"…

A: Otherwise probability= 1- (0.24+0.38) = 0.38Expected return = (0.24*-0.04( + (0.38*0) + (0.38*0.18)=…

Q: What is a stock's alpha? Group of answer choices The amount you expect to earn on a security…

A: The CAPM is used to determine an asset's expected return based on the risk-free rate, the asset's…

Q: Suppose stock returns have a 2-factor structure. You observe a broad stock market portfolio A which…

A: Portfolio A return (Ra) = 7.4% Portfolio B return (Rb) = 10.6% Beta of first factor for A (A1) = 0.5…

Q: QUESTION 1 Assume the following data for a stock: beta = 0.9; risk-free rate = 4 percent;…

A: According to bartleby guidelines , if multiple questions are asked , then 1st question needs to be…

Q: You are not given the expected return of stock X. The correlation of the returns on the stock X a…

A: Beta of stock shows the risk and volatility related to risk and volatlity related to the overall…

Q: Consider the following table, which gives a security analyst’s expected return on two stocks and the…

A: In the given case, we have provided the probability and the respective rate of return of each stock…

Q: You've gathered the following infomration on stock A and stock B: Beta Volatility Stock 1.5 25% A…

A: Systematic risk is a concept in finance that pertains to the portion of an investment's risk that…

Q: a.  Given the information in the​ table, the expected rate of return for stock A is enter your…

A: Expected Rate of Return = (Probability 1 x Return 1) + (Probability 2 x Return 2) + (Probability 3 x…

Q: b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2…

A: Single index model: Ri=αi+βiRm+ei Ri=excess return over risk free rate

Q: You have estimated the following probability distributions of expected future returns for Stocks X…

A: Expected return of a stock refers to the amount of profit or loss that an investor can incur on his…

Q: Consider the two stocks below. Which has a positive beta (i.e., tends to move in the same direction…

A: A left to right (or uphill) regression line has a positive slope while a right to left (or downhill)…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.