Essentials Of Investments
11th Edition
ISBN: 9781260316193
Author: Bodie
Publisher: MCG
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Chapter 18, Problem 9PS
Consider the two (excess return) index~m0del regression results for stocks A and B. The risk-free rate over the period was
| Stock A | Stock B | |
| Index model regression estimates |
|
|
| R-square |
|
|
| Residual standard deviation. |
|
|
| Standard deviation of excess returns |
|
|
a. Calculate the following statistics for each stock:
i. Alpha
ii. Information ratio
iii. Sharpe ratio
iv. Treynor’s measure
b. Which stock is the best choice under the following circumstances?
i. This IS the only risky asset to be held by the investor.
ii. This stock will be mixed with the zest of the investor s portfolio, currently composed solely of holdings in the market-index fund.
iii. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.
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Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the
market's average return was 14%. Performance is measured using an index model regression on excess returns.
Index model regression estimates
R-square
Residual standard deviation, o(e)
Standard deviation of excess returns.
i. Alpha
ii. Information ratio
iii. Sharpe ratio
iv. Treynor measure
Stock A
a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.)
%
Stock A
1% +1.2(rm rf)
%
0.635
11.3%
22.6%
Stock B
%
%
Stock B
2% +0.8( rm -rf)
b. Which stock is the best choice under the following circumstances?
0.466
20.1%
26.9%
i. This is the only risky asset to be held by the investor.
ii.
This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the
market-index fund.
iii. This is one of many stocks that the investor is analyzing to form an actively managed stock…
Consider the two (excess return) index-model regression results for stocks A and The risk-free
rate over the period was 6%, and the market’s average return was 14%. Performance is measured
using an index model regression on excess returns.
Stock A
Stock B
Index model regression estimates
1% + 1.2(rM – rf )
2% + 0.8(rM – rf )
R-square
0.576
0.436
Residual standard deviation, σ(e)
10.3%
19.1%
Standard deviation of excess returns
21.6%
24.9%
Calculate the following statistics for each stock:
Alpha
Information ratio
Sharpe ratio
Treynor measure
Which stock is the best choice under the following circumstances?
This is the only risky asset to be held by the investor.
This stock will be mixed with the rest of the investor’s portfolio, currently composed solely
of holdings in the market-index fund.
This is one of many stocks that the investor is analyzing to form an actively managed stock
portfolio.
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the
market's average return was 14%. Performance is measured using an index model regression on excess returns.
Index model regression estimates
R-square
Residual standard deviation, o(e)
Standard deviation of excess returns
Stock A
1% +1.2(rm - rf)
Stock B
2% +0.8(rm – rf)
0.635
0.466
11.3%
22.6%
20.1%
26.9%
Required:
a. Calculate the following statistics for each stock:
b. Which stock is the best choice under the following circumstances?
Complete this question by entering your answers in the tabs below.
Required A
Required B
Calculate the following statistics for each stock:
Note: Round your answers to 4 decimal places.
i. Alpha
ii. Information ratio
iii. Sharpe ratio
iv. Treynor measure
Stock A
Stock B
%
%
Chapter 18 Solutions
Essentials Of Investments
Ch. 18.1 - Prob. 1EQCh. 18.1 - Which fund would you choose if you were...Ch. 18.6 - Prob. 1EQCh. 18.6 - What would happen to the contribution of security...Ch. 18 - Prob. 1PSCh. 18 - Is it possible for a positive alpha to be...Ch. 18 - Prob. 3PSCh. 18 - Prob. 5PSCh. 18 - 6. stock price and dividend history are as...Ch. 18 - Prob. 7PS
Ch. 18 - Based on current dividend yields and expected...Ch. 18 - Consider the two (excess return) index~m0del...Ch. 18 - Prob. 10PSCh. 18 - Prob. 11PSCh. 18 - Prob. 12PSCh. 18 - Conventional wisdom says that one should measure a...Ch. 18 - Prob. 14PSCh. 18 - Prob. 15PSCh. 18 - Bill Smith is evaluating the performance of four...Ch. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 19PSCh. 18 - Prob. 20PSCh. 18 - Prob. 21PSCh. 18 - Prob. 22PSCh. 18 - Prob. 1CPCh. 18 - Prob. 2CPCh. 18 - Prob. 3CPCh. 18 - Prob. 4CPCh. 18 - What is the Sharpe performance measure for...Ch. 18 - Prob. 6CPCh. 18 - Prob. 7CPCh. 18 - Prob. 8CPCh. 18 - Prob. 9CPCh. 18 - Prob. 10CPCh. 18 - Prob. 11CPCh. 18 - Prob. 12CPCh. 18 - Prob. 13CPCh. 18 - Prob. 14CPCh. 18 - Prob. 1WMCh. 18 - Prob. 2WMCh. 18 - Prob. 3WMCh. 18 - Prob. 4WMCh. 18 - Prob. 5WMCh. 18 - Prob. 7WM
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- Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market’s average return was 13%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.588 0.442 Residual standard deviation, σ(e) 10.5% 19.3% Standard deviation of excess returns 21.8% 25.3% a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) stock A (%) Stock B (%) i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure b. Which stock is the best choice under the following circumstances? i. This is the only risky asset to be held by the investor ii. This stock will be mixed with the rest of the investors' portfolio, currently composed solely of holdings in the market-index fund. iii. This is one…arrow_forwardConsider the two (excess return) Index-model regression results for stocks A and B. The risk-free rate over the period was 4%, and the market's average return was 11%. Performance is measured using an Index model regression on excess returns. Stock A Stock B Index model regression estimates R-square 1% +1.2(rm -rf) 2% +0.8(M-r) Residual standard deviation, d(e) Standard deviation of excess returns 0.683 12.1% 23.4% 0.49 20.9% 28.5% Required: a. Calculate the following statistics for each stock: b. Which stock is the best choice under the following circumstances? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Required A Required B Calculate the following statistics for each stock: Note: Round your answers to 4 decimal places. Stock A Stock B i. Alpha 1.0000 % 2.0000 % ii. Information ratio 0.0826 0.0957 iii. Sharpe ratio 0.4017 0.2667 iv. Treynor measure 0.0783x 0.0950 xarrow_forwardSubject: acountingarrow_forward
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