QUESTION 1Which of the following is NOT a piece of evidence for the investor underreaction?OA The stock market index excess returns are positively autocorrelated at the monthly frequency.O B. Stocks with higher returns in the last six months tend to earn higher returns in the future.OCThe stock market index excess returns are negatively autocorrelated at the three to five year horizons.O D. Stocks with higher standardized unexpected earnings tend to earn higher returns in the future.QUESTION 2Which of the following statements regarding the new era thinking is FALSE?OA Dow's approach to the 1,000 milestone in 1960s provided an anchor for people's expectations.O B. Speculative bubbles and their associated new era thinking do not end definitively with a sudden, final crash.OCA low mortgage rate was also a factor for the housing market boom in California in 1970s.O D. The new era theory emerged principally as an after-the-fact interpretation of a stock market boom.QUESTION 3The inability to think through the elementary conclusions one would draw in the future if hypothetical events were to occur is a feature of which of the followingOA Quantitative Anchors.OB Moral Anchors.OC.Magical thinking.OD.Nonconsequentialist reasoning.

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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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5. Evidence that stocks that outperform the market this month also outperform the market next month would tend to disconfirm which form of the efficient capital markets hypothesis? a. the weak form b. the semi-strong form c. the strong form d. the weak and semi-strong forms e. all forms
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Consider the rate of return of stocks ABC and XYZ. Year 1 2 3 4 ABC XYZ ABC 22% 9 19 1 O ABC Ⓒ XYZ ABC XYZ Required: a. Calculate the arithmetic average return on these stocks over the sample period. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) XYZ 38% 11 19 -11 Arithmetic Average b. Which stock has greater dispersion around the mean return? c. Calculate the geometric average returns of each stock. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Expected rate of return 11.40 % 11.40 % Geometric Average Expected rate of return d. If you were equally likely to earn a return of 22%, 9%, 19%, 6%, or 1%, in each year (these are the five annual returns for stock ABC), what would be your expected rate of return? (Do not round Intermediate calculations. Round your answers to 2 decimal places.) e. What if the five possible outcomes were those of stock XYZ? (Do not round Intermediate calculations. Round your answers to 2…
use excel 5. Motor City Productions sells original automotive art on a prepaid basis as each piece is uniquely designed to the customer's specifications. For one project, the cash flows are estimated as follows. Based on the internal rate of return (IRR), should this project be accepted if the required return is 9 percent? (Hint: You may or may not be able to use the simple default IRR rule) (a) IRR is 7.27%. Accept the project. (b) IRR is 7.27%. Reject the project. (c) IRR is 9%. Accept the project. (d) IRR is 9%. Reject the project.
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Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while the market risk premium (rM − rRF), is expected to fall. Given this forecast, which of the following statements is CORRECT? a. The required return on all stocks will remain unchanged. b. The required return will fall for all stocks, but it will fall more for stocks with higher betas. c. The required return for all stocks will fall by the same amount. d. The required return will fall for all stocks, but it will fall less for stocks with higher betas. e. The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.
Why does the Government bond market play a central role in New Zealand’s capital markets? What are the main factors influencing NZ Govt bond rates? Why are Govt bond rates currently trending upwards?
H. As a new analyst, you have obtained the prices for the stocks of both Lulu and Lemon. Both stocks did not paid any dividends during the entire period. (1) (II) (III) Your manager has asked you (i) to compute the rate of return and standard deviation of the two stocks and suggest that because these companies produce similar products, you should continue your analysis by (ii) computing their covariance and correlation. Show all calculations. Year 2019 2020 2021 2022 2023 Closing prices of LuLu Closing prices of Lemon 20.50 30.10 19.92 28.50 22.45 30.10 24.50 40.30 20.50 36.40 Compute the return and standard deviation of a portfolio with 60% investment in Lulu and 40% in Lemon. Would you recommend putting these two stocks together in a portfolio? Explain why or why not.
a. A stock has an annual return of 10 percent and a standard deviation of 66 percent. What is the smallest expected loss over the next year with a probability of 2.5 percent? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places. Smallest expected loss b. Does this number make sense? Yes O No %
Consider the following information: Economy Recession Normal Boom Probability of State of Economy .21 .56 .23 Rate of Return if State Occurs Stock A Stock B a. Expected return of A Expected return of B b. Standard deviation of A Standard deviation of B .015 .095 .250 a. Calculate the expected return for the two stocks. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. -.36 .26 .49 b. Calculate the standard deviation for the two stocks. Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. % % %
7. Consider the following information about Stocks I and II: Probability of Rate of Return if State Occurs State of Economy Recession Normal Irrational exuberance State of Economy .25 .50 .25 Stock I .02 .21 .06 Stock Il -.25 .09 .44 The market risk premium is 8 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is "riskier"? Explain.
Consider the following table for a period of six years: Year 123456 Large- Company Stocks - 16.09% -26.89 37.51 24.21 7.72 6.85 Returns U.S. Treasury Bills 7.57% 8.13 6.15 6.47 5.59 8.06

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