You know that the prices on a stock market follow a lognormal geometric random walk. Given the following parameters: H = 0,15 o² = 0,04, %3D calculate: The expected log return for 5 years The median log return for 10 years The median gross 10-year return If the stock price starts at $100, what is the expected price after 10 years?

You know that the prices on a stock market follow a lognormal geometric random walk. Given the following parameters: H = 0,15 o² = 0,04, %3D calculate: The expected log return for 5 years The median log return for 10 years The median gross 10-year return If the stock price starts at $100, what is the expected price after 10 years?

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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You are analyzing a stock that has a beta of 1.19. The risk-free rate is 4.4% and you estimate the market risk premium to be 6.6%. If you expect the stock to have a return of 9.8% over the next year, should you buy it? Why or why not? The expected return according to the CAPM is%. (Round to two decimal places.) Should you buy the stock? (Select the best choice below.) O A. Yes, because the expected return based on the beta is equal to or less than the return on the stock. O B. No, because the expected return based on the beta is greater than the return on the stock.
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 risk-free rate is 3.7% and you believe that the S&P 500's excess return will be 11% over the next year. If you invest in a stock with a beta of 1 (and a standard deviation of 30%), what is your best guess as to its expected excess return over the next year? Question content area bottom Part 1 The expected excess return over the next year is enter your response here %. (Round to two decimal places.)
An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates. REQUIRED RATE OF RETURN (Percent) 1.2 1.6 2.0 0.8 RISK (Beta) New SML ? The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the the slope of the SML. Which of the following statements best describes the shape of the SML if investors were not at all risk averse? O The SML would be a horizontal line. O The SML would have a negative slope. O The SML would have a positive slope, but the slope would be steeper than it would be if…
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.
Investors expect the market rate of return this year to be 17.00%. The expected rate of return on a stock with a beta of 0.9 is currently 15.30%. If the market return this year turns out to be 15.00%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
Year End Index Realized Return 2000 23.6% 2001 24.7% 2002 30.5% 2003 9.0% 2004 -2.0% 2005 -17.3% 2006 -24.3% 2007 32.2% 2008 4.4% 2009 7.4%
If the current price of a stock is $30, and you believe that price changes follow a random walk, what is your best estimate for the expected price tomorrow. A) 0 B) 25 C) 30 D) 35 E) 40
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Calculate the Beta of a stock that has annual returns of 18%, -10%, 16%, while the market (X-variable) has corresponding annual returns of 20%, -5%, 10% during each of these three years. (Hint: Your calculator should generate an average value of 8% for the stock = Y, if not re-check your data register).
This section asks you to calculate prices for various options. In all cases, consider a rate r = 7.97% per year. Estimate the volatility of returns using the estimator: 1 n-1 σ²≈ T-t i=0 Si+1 log. Sti 2 The term of each option will be T = 182/360 (half a year). Determine a reasonable strike K, which is at similar levels to the price series you have downloaded. An option is a derivative instrument that gives its holder the right to buy or sell an underlying asset at a pre-agreed price K at a future date T. If this right can only be exercised in time T, we say that the option is of the European type. If it can be exercised at T or at any time prior to T, then we say that the option is American. Likewise, if the option grants the right to buy, we say that the option is Call type, if it grants the right to sell then the option is Puttype. These types of options are the simplest and are known as European vanilla options. In this case, if T is the expiration date of the contract, and St is…
The following represents the probability distribution for the rates of return for next month: Probability 1/6 2/6 2/6 1/6 Portfolio Market M P (%) (%) -20 -5 -5 +5 +10 0 +50 +10 What is the market beta of P?

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