Which of the following statements is correct? The value of cyclical stocks follows the rise and fall of the business cycle. The value of defensive stocks is likely to fall more when the market falls. || I and II None
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- 1. What effect does increasing inflation expectations have on the required returns of investors in common stock? 2. Explain the specific relationship between risk and reward and why this relationship must be true.Consider the following information about Stocks X and Y: State of Economy Probability of State Stock X Returns Stock Y Returns Recession 0.15 0.11 -0.25 Steady 0.55 0.18 0.11 Boom 0.30 0.08 0.31 The market risk premium is 7.5 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 information about Stocks I and II: Probability of State of Economy State of Rate of Return if State Occurs Economy Stock I Stock II Recession 0.15 0.20 -0.25 Normal 0.70 0.21 0.09 Irrational exuberance 0.15 0.06 0.44 The market risk premium is 7 percent, and the risk-free rate is 4 percent. a) Which stock has the most systematic risk? b) Which one has the most unsystematic risk? c) Which stock is "riskier"? Explain.
- USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Stock Rit Rmt ai Beta C 12 10 0 0.8 E 10 8 0 1.1 Rit = return for stock i during period t Rmt = return for the aggregate market during period t What is the abnormal rate of return for Stock C during period t using only the aggregate market return (ignore differential systematic risk)?Let Ps be the current market price of a share of common stock of Company X. Let P; be the "fundamental" value of a share of common stock of Company X. Let r be the long-run average annual compounded rate of return on common stocks, ånd b be the long-run annual compounded rate of return on corporate bonds. Finally, let ɛ be a random error term. Which of the following equations best characterizes the Efficient Markets Hypothesis? Select one: O a. Ps = Pf + r+ ɛ O b. Ps = Pf + ɛ- b O c. Ps = (Pf + ɛ) x (r – b) O d. Ps = Pf + ɛQuestion 2: State whether the following statements are true or false. Efficient Market Hypothesis means Securities are normally in equilibrium and are “fairly priced. The market is IN equilibrium when the required rate of return larger than the dividend growth rate.
- Noneb. Consider the following information about three stocks: Probability of State of i. ii. iii. iv. State of Economy V. Boom Recession Economy 0.40 0.60 From the information given, you are required to answer the following questions. Compute the Standard Deviation for each stock. Compute the Coefficient Variation for each stock. Based on your computation in part (i) and (ii), which stock is riskier? Explain your answer. Rate of Return if State Occurs Stock Hang Stock Hang Jebat 7% 13% Tuah 28% (5%) Stock Hang Kasturi 15% 3% Assume that you have RM14,000 invested in Stock Hang Jebat whose beta is 1.5, RM19,000 invested in Stock Hang Kasturi whose beta is 2.5 and RM17,000 invested in Stock Hang Tuah whose beta is 1.6. Determine what is the beta of this portfolio. Based on your answer in part (iv), compute the required rate of return for this portfolio, given that the market rate of return is 13% and risk-free rate is 5%.which one is correct please confirm? QUESTION 23 The ____ theory holds that the securities markets are demarcated by maturity. a. expectations b. liquidity premium c. boondoggle d. market segmentation
- G 2QUESTION 1 Exhibit 5.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stock Rit Rmt ai Beta A 10.6 15 0 0.8 Z 9.8 8.0 0 1.1 Rit = return for stock i during period t Rmt = return for the aggregate market during period t Refer to Exhibit 5.5. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)? a. 4.40 b. −1.70 c. 3.40 d. −4.40 e. −1.861. Which statement is not true regarding the market portfolio? a.It lies on the efficient frontier.b.All securities in the market portfolio are held in proportion to their market values.c.It is the tangency point between the capital market line and the indifference curve.d.All of the options are true. 2. Which of the following are used by fundamental analysts to determine proper stock prices? I.TrendlinesII.EarningsIII.Dividend prospectsIV.Expectations of future interest ratesV.Resistance levels a.I, IV, and Vb.I, II, and IIIc.II, III, and IVd.All of the items are used by fundamental analysts.
