You have the following data on three stocks: If you are a strict risk minimizer, you would choose Stock if it is to be held in isolation, and Stock, a well-diversified portfolio. if it is to be held as part of Stock Standard Deviation Beta X 8% 1.35 Y 10% 1.05 Z 12% 0.75 ○ X; X O Z; Z O X; Z O Z; X SO Y; Y

You have the following data on three stocks: If you are a strict risk minimizer, you would choose Stock if it is to be held in isolation, and Stock, a well-diversified portfolio. if it is to be held as part of Stock Standard Deviation Beta X 8% 1.35 Y 10% 1.05 Z 12% 0.75 ○ X; X O Z; Z O X; Z O Z; X SO Y; Y

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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Your client is considering purchasing stocks. The actual return of one o his choices follows here. Assist him by calculating the standard deviation and advise him what the risk is. Stock 'A' Actual Returns = 6%, 12%, 8%, 10% 0.0164 0.0258 0.0542 0.1072
Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return 6% 22 Aggressive Stock -3% 35 Defensive Stock 4% 12 Required: a. What are the betas of the two stocks? b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely? e. What hurdle rate should be used by the management of the aggressive firm for a project with the risk characteristics of the defensive firm's stock if market return is equally likely to be 6% or 22% ? Also, assume a T-Bill rate of 4%.
b. 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%.
The beta coefficient A 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 stock movements relative to the market. A stock that is more volatile than the market will have a beta of less than 1.0. Q1. Option 1 Unsystematic or Option 2 Relevant. Please provide true or false answers. Thank you!
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.27 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Beta
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.23 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock beta
You have the following data on three stocks: Stock Standard Deviation Beta A 20% 0.59 B 10% 0.61 C 12% 1.29 If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio. Group of answer choices A; A. A; B. C; A. B; A.
1 The information regarding the risk level of three different stocks is presented below. 1. Which stock has the highest level of risk? Interpret the beta of that stock. 2. Which stock has the level of risk that is closest to the market level of risk? How do we measure the market level of risk? Beta Standard Deviation Flylnc 2.1 15.8% Airco 1.1 17.3% SkyCorp 0.8 21.5%
An individual stock with a beta greater than 1.0 is a. Same as risky as the market b. Riskier that the market c. Less risky as the market d. It has no relationship with the market
Suppose securities A, B, and C have the following expected return and risk. Stock Expected return Risk A 8% 6% B 7% 9% C 13% 9% What is the coefficient of variation for stock A?
1. If a stock has a(Alpha)=0.002, b(Beta)=1.4, Using the market model (eq. 7.4), find the expected percent return for the above stock if the market return is expected to be 2% and the risk free rate is 1%. 2. 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?
A stock has a correlation with the market of 0.4. If the Sharpe ratio of the market portfolio is 0.7, what is the Sharpe ratio of the stock? (Hint: algebraically manipulate the SML equation.) 0.28 0.75C. 0.60D. 0.55

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