CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 2819440196222
Author: Bodie
Publisher: MCG
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Chapter 2, Problem 31PS
Examine the stocks listed in Figure 2.8. For what fraction of these stocks is the 52-week high price at Least 50% greater than the 52-week low price? What do you conclude about the volatility of prices on individual stocks’? (LO 2-1)
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Suppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What is the covariance between each stock and the market index?
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Chapter 2 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
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- Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 3.2% + 1.10RM + eA RB = -1.4 % + 1.25RM + eB OM= 30%; R-squareд = 0.28; R-squareg = 0.12 What is the covariance between each stock and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round your intermediate calculations. Round your answers to nearest whole number. Answer is complete but not entirely correct. Stock A Stock B Covariance 93 x 101 xarrow_forwardSuppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.20RM + eA RB = -1.6% + 1.50RM + eB OM = 16%; R-squareд = 0.25; R-squarep = 0.15 What is the covariance between each stock and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round your intermediate calculations. Round your answers to nearest whole number. Stock A Stock B Covariancearrow_forwardVinayarrow_forward
- Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period. a. A market-value-weighted index. rate of returnb. An equally weighted index. rate of returnarrow_forwardSuppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.2RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squarea = 0.25; R-square; = 0.15 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.) Covariance Stock A Stock Barrow_forwardSuppose that you observe the following information in Table 2 for stocks A and B: Table 2 Expected Return (%) 11% Stock Beta A 0.8 B 14% 1.5 The risk-free rate of return is 6% and the expected rate of return on the market index is 12%. Using the Single-Index Model, calculate the alpha of both stocks. Show your calculations. Explain what the alpha of the single-factor model represents and interpret your results.arrow_forward
- Question 1 Suppose you have the following expectations about the market condition and the returns on Stocks X and Y. Market Condition Probability Return on Stock X Return on Stock Y Bear Market 0.3 -3% -5% Normal Market 0.5 3% 5% Bull Market 0.2 8% 15% a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?arrow_forwardRaghubhaiarrow_forwardConsider the three stocks in the following table. P, represents the price at time t, and Q, represents the total shares outstanding at time t. Calculate the rate of return on a price-weighted index of three stocks for the first period (t=0 to t=1). Table 2: Data for Q4 & Q5 Q0 P1 Q1 PO 100 50 105 50 A B 200 100 210 100 C 300 100 250 100arrow_forward
- Suppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (including dividends) Boom 0.35 $140 44.5% Normal growth 0.30 110 14.0 Recession 0.35 80 -16.5 Use the following equations to compute the mean and standard deviation of the HPR on stocks:arrow_forwardHelp me get the solution pleasearrow_forward1. Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Calculate the rates of return on the following indexes of the three stocks: A B с Po 90 50 100 a. A market-value-weighted index. b. An equally weighted index. Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200arrow_forward
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