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% over the coming month. Beta 0.75 R-square 0.65 Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.50 instead of 0.75. The standard deviation of the monthly market rate of return is 5%. Standard Deviation of Residuals 0.06 (1.e., 6% monthly) Required: a. If he holds a $6 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, what is the standard deviation of the (now improperly) hedged portfolio? The S&P 500 currently is at 3,000 and the contract multiplier is $50. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) Standard deviation Probability of a negative return 0.00 % b. What is the probability of incurring a loss over the next month if the monthly market return has an expected value of 1% and a standard deviation of 5% ? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) 0.00%

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% over the coming month. Beta 0.75 R-square 0.65 Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.50 instead of 0.75. The standard deviation of the monthly market rate of return is 5%. Standard Deviation of Residuals 0.06 (1.e., 6% monthly) Required: a. If he holds a $6 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, what is the standard deviation of the (now improperly) hedged portfolio? The S&P 500 currently is at 3,000 and the contract multiplier is $50. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) Standard deviation Probability of a negative return 0.00 % b. What is the probability of incurring a loss over the next month if the monthly market return has an expected value of 1% and a standard deviation of 5% ? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) 0.00%

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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Given the following excess return index model regression results Ra*= -0.059616 + 0.957478Rm* where; \sigma M = 0.80226720, the return on the market portfolio is 0.085306, and the risk-free rate is 0.018302. Note Ra* and Rm* are excess returns. Calculate the actual return for Stock A. Round to 4 decimals, and present answer as a decimal (.08, not 8%) Answer: 0.0228
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% over the coming month. Beta 0.75 R-square 0.65 Standard Deviation of Residuals 0.06 (1.e., 68 monthly) a. Suppose you hold an equally weighted portfolio of 100 stocks with the same alpha, beta, and residual standard deviation as Waterworks. Assume the residual returns on each of these stocks are independent of each other. What is the residual standard deviation of the portfolio? (Round your answer to 1 decimal place.) Answer is complete and correct. 0.6 % Residual standard deviation b. Calculate the probability of a loss on a market-neutral strategy involving equally weighted, market-hedged positions in the 100 stocks over the next month. Assume the risk-free rate is 0.5% per month. (Do not round intermediate calculations. Enter your answer as percent rounded to 5 decimal…
A security analyst has regressed the monthly returns on Exxon Mobil equity shares over the past five years against those on the Standard & Poor's 500 stock index over the same period. The resulting regression equation is rEM = 0.08 + 1.44 rSP. Use this equation to estimate Exxon Mobil's equity beta.
You ran a regression of the excess return on Walmart's stock on the excess return on the market. You found the following: alpha=1.5%, beta-2.818, R^2=0.623. If Walmart's total volatility was 0.310 in that same period, what must have been the markets volatility in that same period.
1. Assume stock prices follow a random walk and a particular stock has had the following recent stock prices: Day 1: 129.5 Day 2: 126.9 Day 3: 127.1 what is the best estimate of day 4 prices? 2. What is a stock's realized abnormal return if the stock had a 3% return and the stock had a Beta=1.24, an Alpha=0 and the excess market return was 3.3%. assume the risk free rate is 0%. Please use 5 decimal places in your response. Please write negative returns using the "-" symbol, so a negative 1% return would be written as -.01 2. If the yield to maturity for a two year zero coupon bond is 5.8% and the yield to maturity for a 3 year zero coupon bond is 6.1%, what is the implied future short rate from year 2 to 3 (use 5 decimal places, write 3.333% as .03333)?
Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks: - a. Calculate the alpha for each stock in the table. b. At current market prices, which stocks represent buying opportunities? On which stocks should you put a sell order in? a. Calculate the alpha for each stock in the table. Complete the table with the alphas below: (Round to two decimal places.) Green Leaf Expected Return Volatility 12% 20% Beta Alpha 1.50 %% Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Expected Return Volatility Beta Green Leaf 12% 20% 1.50 NatSam 10% 40% 1.80 HanBel 9% 30% 0.75 Rebecca Automobile 6% 35% 1.20 - X
A. If a stock costs $55 one month and drops to $45 the next month, what is the expected stock price the next month, if we assume the stock follows a random walk? B. Explain both technical and fundamental analysis and what form of the efficient market hypothesis corresponds to each.
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% over the coming month. Beta 1.65 R-square 0.65 standard Deviation of Residuals .15 (i.e., 15% monthly ) a. Suppose you hold an equally weighted portfolio of 100 stocks with the same alpha, beta, and residual standard deviation as Waterworks. Assume the residual returns on each of these stocks are independent of each other. What is the residual standard deviation of the portfolio? (Round your answer to 1 decimal place.) b. Calculate the probability of a loss on a market - neutral strategy involving equally weighted, market - hedged positions in the 100 stocks over the next month. Assume the risk - free rate is 0.6% per month. ( Do not round intermediate calculations. Enter your answer as percent rounded to 5 decimal places.)
Assume these are the stock market and Treasury bill returns for a 5-year period: Required: a. What was the risk premium on common stock in each year? b. What was the average risk premium? c. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Complete this question by entering your answers in the tabs below. What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.) Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
You are given the following returns on "the market" and Stock F during the last three years. We could calculate beta using data for Years 1 and 2 and then, after Year 3, calculate a new beta for Years 2 and 3. How different are those two betas, i.e., what's the value of beta 2 - beta 1? (Hint: You can find betas using the Rise-Over-Run method, or using your calculator's regression function.) Year Market Stock F 1 6.10% 19.50% 2 12.90% −3.70% 3 16.20% 21.71% A. 10.96 B. 10.91 C. 11.06 D. 11.01 E. 11.11 Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
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.)
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 4%. Guardian Market Portfolio Average return 14 % 10 % Standard deviation of returns 27 % 21 % Beta 1.5 1 Residual standard deviation 4 % 0 % Calculate the information ratio measure of performance for Guardian Stock Fund. (Round your answer to 2 decimal places. Do not round intermediate calculations.)

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