The following traders have different expectations/beliefs as to how the price of a stock will develop in the Future. Which trading strategy best meets the expectations for each trader? Eilidh expects the stock price to move a lot, but thinks there is a slightly higher Choose... chance for a significant decline Ying-Fen expects a moderate decline Choose... Sayan expects the stock price to move significantly in either direction Choose... Paul expects a moderate rise Choose... Divya expects the stock price to move very little, if at all Choose...

The following traders have different expectations/beliefs as to how the price of a stock will develop in the Future. Which trading strategy best meets the expectations for each trader? Eilidh expects the stock price to move a lot, but thinks there is a slightly higher Choose... chance for a significant decline Ying-Fen expects a moderate decline Choose... Sayan expects the stock price to move significantly in either direction Choose... Paul expects a moderate rise Choose... Divya expects the stock price to move very little, if at all Choose...

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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Yinzhou is an investment adviser of CBMC Fresno Inc., and one of his client intends to invest in a stock that plots below the security market line (SML). What would be the appropriate recommendation? O Invest; The expected return is high relative to the risk. O Don't invest; The risk is high relative to the expected return. O Invest; All stocks revert to the SML over time. O Don't invest; All stocks below the SML are low-growth stocks.
An investor is faced with the decision of whether to invest in a stock with an expected return of 14% or a stock in the same industry with an expected 20% return. Which of the following seems most likely? Multiple Choice the 20% stock is a better investment. the 14% stock is overpriced. Both stocks will have approximately the same return. Both stocks are priced correctly given their perceived risk.
1.) According to Jacques’s recommendation, assuming that the market is in equilibrium, how much will the portfolio’s required return change? _______ 2.) Suppose, based on the earnings consensus of stock analysts, Jacques expects a return of 9.57% from the portfolio with the new weights. Does he think that the revised portfolio, based on the changes he recommended, is undervalued, overvalued, or fairly valued? _______ 3.) Suppose instead of replacing Atteric Inc.’s stock with Baque Co.’s stock, Jacques considers replacing Atteric Inc.’s stock with the equal dollar allocation to shares of Company X’s stock that has a higher beta than Atteric Inc.. If everything else remains constant, the portfolio’s risk would _______
(Expected Rate of Return and Risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return .30 11% .20 25% .40 15% .30 6% .30 19% .30 14% .20 22%
7. Which of the following statements is FALSE? A) The market portfolio is the efficient portfolio. B) Many practitioners believe it is sensible to use the CAPM and the security market line as a practical means to estimate a stock's required return and therefore a firm's equity cost of capital. C) If we plot individual securities according to their expected return and beta, the CAPM implies that they should all fall along the CML. D) The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha.
In efficient markets, the rate of return on a stock should be: A. always greater than the risk-free rate B. Less than zero C. Related to the systemic risk of the stock D. Zero; no stock should earn a positive return
Which of the following statement is most accurate in analyzing a stock? If the security has a lower intrinsicvalue than that of the current price_________________a. The stock is good to buyb. Buy more stocks it will definitely go upc. Buy more stocks when price increasesd. The stock is not good to buye. None of the above.
Which of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a future
If the investor desires less risk than the market, he or she: A) buys stocks with alphas of zero. B) buys stocks with betas less than 1.0. C) makes sure the risk-free rate is higher than the expected market return. D) buys stocks only when the slope of the security market line is on a 45-degree angle.
You are an investor who wants to express a long bias in stock XYZ between now and June expiration. You think that the stock will finish above $125 but not go above $130. Which option strategy would get you long delta and be the best one to use given your outlook? a. conversion b. protective put c. straddle d. bull call spread e. none of the above
Given the information in the table below, which of the following statements is correct, assuming that either security will be held in a portfolio with other investments? Stock Expected Return Required Return Beta Standard Deviation A 10% 12% 0.9 25% B 8% 5% 0.3 35% Question 26 options: The investor should purchase both stocks because their beta is less than that of the market. The investor should purchase A since its risk, as measured by standard deviation, is the lowest. The investor should purchase A because it requires the highest rate of return. The investor should purchase B since its expected return exceeds its required return.
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 % %

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