GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
11th Edition
ISBN: 9781260201550
Author: Bodie
Publisher: MCG
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Chapter 5, Problem 7PS
Summary Introduction
To calculate: The standard deviation and mean of the HPR on the stocks are to be determined.
Introduction: The absolute measurement of the risk is called as standard deviation(SD). It is used to represent the deviation of observation from the mean value or average value.
The mean return can be calculated by the multiplication of the probability with holding period return.
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Students have asked these similar questions
A price-weighted index such as the DJIA is a geometric mean of current stock prices. a. True b. False
The metric that is used to show the extent to which a given stock’s return move up and down with the stock market?
a. Correlation
b. Beta
c. Standard deviation
d. Expected return
Using the data in the following table,, estimate the:
a. Average return and volatility for each stock.
b. Covariance between the stocks.
c. Correlation between these two stocks.
Chapter 5 Solutions
GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
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- The market and Stock J have the following probability distributions: a. Calculate the expected rates of return for the market and Stock J. b. Calculate the standard deviations for the market and Stock J.arrow_forwardWhen working with the CAPM, which of the following factors can be determined with the most precision? a. The beta coefficient of "the market," which is the same as the beta of an average stock. b. The beta coefficient, bi, of a relatively safe stock. c. The market risk premium (RPM). d. The most appropriate risk-free rate, rRF. e. The expected rate of return on the market, rM.arrow_forwardThe index model has been estimated for stock A with the following results: RA = 0.01 + 1.2RM + eA. σM = 0.15; σ(eA) = 0.10. The standard deviation of the return for stock A isarrow_forward
- The Black-Scholes OPM is dependent on which five parameters? Select one: a. Stock price, exercise price, risk free rate, beta, and time to maturity b. Stock price, risk free rate, beta, time to maturity, and variance c. Stock price, exercise price, risk free rate, standard deviation and time to maturity d. Stock price, risk free rate, probability, standard deviation and exercise pricearrow_forwardHow do you calculate the Treynor ratio for the AMD stock?arrow_forwardSuppose that the capital asset pricing model (CAPM) applies. The risk premium of a stock is 3 percent and the risk premium of the market portfolio is 2. The standard deviation of the market portfo- lio is 6. Compute the covariance between the stock and the market portfolio.arrow_forward
- When working with the CAPM, which of the following factors can be determined with the most precision? a. The most appropriate risk-free rate, rRF. b. The market risk premium (RPM). c. The beta coefficient, bi, of a relatively safe stock. d. The expected rate of return on the market, rM. e. The beta coefficient of "the market," which is the same as the beta of an average stock.arrow_forwardHow can the model be used to estimate the predicted return ona stock?arrow_forwardA stock has a market beta of 0.86 and a standard deviation of 0.28. If the market standard deviation is 0.30, what is the covariance between the stock return and the market return?arrow_forward
- What is a characteristic line? How is this line usedto estimate a stock’s beta coefficient? Write outand explain the formula that relates total risk,market risk, and diversifiable riskarrow_forwardExplain how the following parameters are used for analyzing a stock (or portfolio). Include in your explanation your selected stock's parameter values: Coefficient of determination, systematic risk and unsystematic risk Beta Alpha Convexity: Beta+ and Beta−arrow_forwardThe standard deviation of a stock’s return is a measure of its? Multiple Choice systematic risk correlation expected future return total riskarrow_forward
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