ESSEN.OF.INVESTMENTS+CONNECT
ESSEN.OF.INVESTMENTS+CONNECT
10th Edition
ISBN: 9781260361605
Author: Bodie
Publisher: MCG
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Chapter 7, Problem 1WM
Summary Introduction

To show:

The data of company Alcoa and data of returns on S&P.

Expert Solution
Check Mark

Explanation of Solution

The data for returns of Alcoa is shown below:

    Date Returns Alcoa
    12/1/2013 0
    1/1/2014 0
    2/1/2014 0.019785587
    3/1/2014 0.094520691
    4/1/2014 0.045565745
    5/1/2014 0.010340052
    6/1/2014 0.09213958
    7/1/2014 0.09598186
    8/1/2014 0.013333413
    9/1/2014 -0.029980428
    10/1/2014 0.040797065
    11/1/2014 0.031133233
    12/1/2014 -0.088938172
    1/1/2015 -0.008906032
    2/1/2015 -0.056519624
    3/1/2015 -0.133367024
    4/1/2015 0.037969704
    5/1/2015 -0.071017427
    6/1/2015 -0.112097041
    7/1/2015 -0.121939527
    8/1/2015 -0.043485446
    9/1/2015 0.025067099
    10/1/2015 -0.078577301
    11/1/2015 0.047029033
    12/1/2015 0.056257819
    1/1/2016 -0.302996218
    2/1/2016 0.202912827
    3/1/2016 0.074574737
    4/1/2016 0.153553957
    5/1/2016 -0.18644828
    6/1/2016 0.002902807
    7/1/2016 0.135955619
    8/1/2016 -0.052185714
    9/1/2016 0.008845955
    10/1/2016 -0.12794767
    11/1/2016 0.301002453
    12/1/2016 -0.027282474
    1/1/2017 0.260883907
    2/1/2017 -0.052376863
    3/1/2017 -0.005508
    4/1/2017 -0.019668973
    5/1/2017 -0.023699955
    6/1/2017 -0.008842777
    7/1/2017 0.108723913
    8/1/2017 0.186889829
    9/1/2017 0.060570954
    10/1/2017 0.024577509
    11/1/2017 -0.121820059
    12/1/2017 0.241786656
    1/1/2018 -0.034945458
    2/1/2018 -0.145632637
    3/1/2018 -0.00022244
    4/1/2018 0.129966368
    5/1/2018 -0.06308127
    6/1/2018 -0.025067115
    7/1/2018 -0.080131612
    8/1/2018 0.031842536
    9/1/2018 -0.100472256
    10/1/2018 -0.143767471
    11/1/2018 -0.095281689
    12/1/2018 -0.098711084
    12/7/2018 0
Summary Introduction

To show:

The data of returns on S&P.

Expert Solution
Check Mark

Explanation of Solution

The data for returns of S&P is shown below:

    Date Returns S&P
    12/1/2013 0
    1/1/2014 0
    2/1/2014 0.042213375
    3/1/2014 0.006908249
    4/1/2014 0.006181643
    5/1/2014 0.020812196
    6/1/2014 0.018878997
    7/1/2014 -0.015194687
    8/1/2014 0.036963644
    9/1/2014 -0.015635436
    10/1/2014 0.022936399
    11/1/2014 0.024237474
    12/1/2014 -0.004197385
    1/1/2015 -0.031532779
    2/1/2015 0.053438876
    3/1/2015 -0.017549197
    4/1/2015 0.008484722
    5/1/2015 0.01043673
    6/1/2015 -0.021235559
    7/1/2015 0.019549683
    8/1/2015 -0.064624731
    9/1/2015 -0.026798731
    10/1/2015 0.079719379
    11/1/2015 0.000504742
    12/1/2015 -0.017685659
    1/1/2016 -0.052067617
    2/1/2016 -0.004136906
    3/1/2016 0.06390499
    4/1/2016 0.002695762
    5/1/2016 0.015208367
    6/1/2016 0.000910506
    7/1/2016 0.034990433
    8/1/2016 -0.001219987
    9/1/2016 -0.001235213
    10/1/2016 -0.019616837
    11/1/2016 0.033603545
    12/1/2016 0.018037111
    1/1/2017 0.017726315
    2/1/2017 0.036523001
    3/1/2017 -0.000389273
    4/1/2017 0.009050132
    5/1/2017 0.011509759
    6/1/2017 0.004802226
    7/1/2017 0.019164018
    8/1/2017 0.000546284
    9/1/2017 0.019119039
    10/1/2017 0.02194556
    11/1/2017 0.003713141
    12/1/2017 0.033766015
    1/1/2018 0.054657399
    2/1/2018 -0.039726108
    3/1/2018 -0.027252497
    4/1/2018 0.002715086
    5/1/2018 0.021378191
    6/1/2018 0.004830749
    7/1/2018 0.035387951
    8/1/2018 0.029814315
    9/1/2018 0.004285093
    10/1/2018 -0.071929346
    11/1/2018 0.017701752
    12/1/2018 -0.047137951
    12/7/2018 0

c

Summary Introduction

In this step we have to calculate the excess returns of the stock Alcoa and S&P separately.

c

Expert Solution
Check Mark

Explanation of Solution

The excess returns can be calculated by =

Excess return = Return on stock − T bill rate

Here is the sheet in which we have calculaed the excess returns:

    Date Returns Alcoa Returns S&P T-Bill rate Excess Return on Alcoa Excess Return on S&P
    12/1/2013 0 0 0.07 -0.07 -0.07
    1/1/2014 0 0 0.07 -0.07 -0.07
    2/1/2014 0.019785587 0.042213375 0.04 -0.02 0.00
    3/1/2014 0.094520691 0.006908249 0.05 0.04 -0.04
    4/1/2014 0.045565745 0.006181643 0.05 0.00 -0.04
    5/1/2014 0.010340052 0.020812196 0.03 -0.02 -0.01
    6/1/2014 0.09213958 0.018878997 0.03 0.06 -0.01
    7/1/2014 0.09598186 -0.015194687 0.04 0.06 -0.06
    8/1/2014 0.013333413 0.036963644 0.03 -0.02 0.01
    9/1/2014 -0.029980428 -0.015635436 0.03 -0.06 -0.05
    10/1/2014 0.040797065 0.022936399 0.02 0.02 0.00
    11/1/2014 0.031133233 0.024237474 0.02 0.01 0.00
    12/1/2014 -0.088938172 -0.004197385 0.02 -0.11 -0.02
    1/1/2015 -0.008906032 -0.031532779 0.03 -0.04 -0.06
    2/1/2015 -0.056519624 0.053438876 0.03 -0.09 0.02
    3/1/2015 -0.133367024 -0.017549197 0.02 -0.15 -0.04
    4/1/2015 0.037969704 0.008484722 0.03 0.01 -0.02
    5/1/2015 -0.071017427 0.01043673 0.02 -0.09 -0.01
    6/1/2015 -0.112097041 -0.021235559 0.02 -0.13 -0.04
    7/1/2015 -0.121939527 0.019549683 0.02 -0.14 0.00
    8/1/2015 -0.043485446 -0.064624731 0.03 -0.07 -0.09
    9/1/2015 0.025067099 -0.026798731 0.07 -0.04 -0.10
    10/1/2015 -0.078577301 0.079719379 0.02 -0.10 0.06
    11/1/2015 0.047029033 0.000504742 0.02 0.03 -0.02
    12/1/2015 0.056257819 -0.017685659 0.12 -0.06 -0.14
    1/1/2016 -0.302996218 -0.052067617 0.23 -0.53 -0.28
    2/1/2016 0.202912827 -0.004136906 0.26 -0.06 -0.26
    3/1/2016 0.074574737 0.06390499 0.31 -0.24 -0.25
    4/1/2016 0.153553957 0.002695762 0.29 -0.14 -0.29
    5/1/2016 -0.18644828 0.015208367 0.23 -0.42 -0.21
    6/1/2016 0.002902807 0.000910506 0.27 -0.27 -0.27
    7/1/2016 0.135955619 0.034990433 0.27 -0.13 -0.24
    8/1/2016 -0.052185714 -0.001219987 0.30 -0.35 -0.30
    9/1/2016 0.008845955 -0.001235213 0.30 -0.29 -0.30
    10/1/2016 -0.12794767 -0.019616837 0.29 -0.42 -0.31
    11/1/2016 0.301002453 0.033603545 0.33 -0.03 -0.30
    12/1/2016 -0.027282474 0.018037111 0.45 -0.48 -0.43
    1/1/2017 0.260883907 0.017726315 0.51 -0.25 -0.49
    2/1/2017 -0.052376863 0.036523001 0.51 -0.56 -0.47
    3/1/2017 -0.005508 -0.000389273 0.52 -0.53 -0.52
    4/1/2017 -0.019668973 0.009050132 0.74 -0.76 -0.73
    5/1/2017 -0.023699955 0.011509759 0.80 -0.82 -0.79
    6/1/2017 -0.008842777 0.004802226 0.89 -0.90 -0.89
    7/1/2017 0.108723913 0.019164018 0.98 -0.87 -0.96
    8/1/2017 0.186889829 0.000546284 1.07 -0.88 -1.07
    9/1/2017 0.060570954 0.019119039 1.01 -0.95 -0.99
    10/1/2017 0.024577509 0.02194556 1.03 -1.01 -1.01
    11/1/2017 -0.121820059 0.003713141 1.07 -1.19 -1.07
    12/1/2017 0.241786656 0.033766015 1.23 -0.99 -1.20
    1/1/2018 -0.034945458 0.054657399 1.32 -1.35 -1.27
    2/1/2018 -0.145632637 -0.039726108 1.41 -1.56 -1.45
    3/1/2018 -0.00022244 -0.027252497 1.57 -1.57 -1.60
    4/1/2018 0.129966368 0.002715086 1.70 -1.57 -1.70
    5/1/2018 -0.06308127 0.021378191 1.76 -1.82 -1.74
    6/1/2018 -0.025067115 0.004830749 1.86 -1.89 -1.86
    7/1/2018 -0.080131612 0.035387951 1.90 -1.98 -1.86
    8/1/2018 0.031842536 0.029814315 1.96 -1.93 -1.93
    9/1/2018 -0.100472256 0.004285093 2.03 -2.13 -2.03
    10/1/2018 -0.143767471 -0.071929346 2.13 -2.27 -2.20
    11/1/2018 -0.095281689 0.017701752 2.25 -2.35 -2.23
    12/1/2018 -0.098711084 -0.047137951 2.25 -2.35 -2.30
    12/7/2018 0 0 2.25 -2.25 -2.25

d

Summary Introduction

We have to plot excess Alcoa return over excess S&P return.

d

Expert Solution
Check Mark

Explanation of Solution

We can use excel insert function to plot XY chart by selecting the data give above.

The plot will look like this.

ESSEN.OF.INVESTMENTS+CONNECT, Chapter 7, Problem 1WM

Then we can also insert the trend line.

e

Summary Introduction

We have to find out the beta and alpha of Alcoa by looking at the trend line.

e

Expert Solution
Check Mark

Explanation of Solution

By looking at the trend line:

    Trend line is: y = 0.0012 x + 51.382
    Beta of Alcoa from the trend line = 0.0012
    And Alpha of Alcoa is : 51.382

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Chapter 7, Problem 14CP
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Chapter 7 Solutions

ESSEN.OF.INVESTMENTS+CONNECT

Ch. 7 - Prob. 1PSCh. 7 - Consider the statement: “If we can identify a...Ch. 7 - Are the following true or false? Explain. (LO 7-5)...Ch. 7 - Here are data on two companies. The T-bill rate is...Ch. 7 - Characterize each company in the previous problem...Ch. 7 - What is the expected rate of return for a stock...Ch. 7 - Kaskin, Inc., stock has a beta of 1.2 and Quinn,...Ch. 7 - Prob. 8PSCh. 7 - What must be the beta of a portfolio with E(rf)) =...Ch. 7 - The market price of a security is $40. Its...
Ch. 7 - You arc a consultant to a large manufacturing...Ch. 7 - Consider the following table, which gives a...Ch. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - If the simple CAPM is valid, which of the...Ch. 7 - Prob. 16PSCh. 7 - If the simple CAPM is valid, which of the...Ch. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - In problem 2123 below, assume the risk-free rate...Ch. 7 - Prob. 22PSCh. 7 - In problem 2123 below, assume the risk-free rate...Ch. 7 - Two investment advisers are comparing performance....Ch. 7 - Suppose the yield on short-term government...Ch. 7 - Based on current dividend yields and expected...Ch. 7 - Consider the following data for a single index...Ch. 7 - Assume both portfolios A and B are well...Ch. 7 - Prob. 29PSCh. 7 - Prob. 30PSCh. 7 - Et Ch. 7 - Suppose two factors are identified for the U.S....Ch. 7 - Suppose there are two independent economic...Ch. 7 - As a finance intern at Pork Products, Jennifer...Ch. 7 - Suppose the market can be described by the...Ch. 7 - Which of the following statements about the...Ch. 7 - Kay, a portfolio n1anacr at Collins Asset...Ch. 7 - Prob. 3CPCh. 7 - Jeffrey Bruner, CFA, uses the capital asset...Ch. 7 - Prob. 5CPCh. 7 - According to CAPM, the expected rate of a return...Ch. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - 9. Briefly explain whether investors should expect...Ch. 7 - Assume that both X and Y are well-diversified port...Ch. 7 - Prob. 11CPCh. 7 - 12. A zero-investment, well-diversified portfolio...Ch. 7 - 13. An investor takes as large a position as...Ch. 7 - In contrast to the capital asset pricing model,...Ch. 7 - Prob. 1WMCh. 7 - Prob. 2WMCh. 7 - Prob. 3WMCh. 7 - a. Which of the stocks would you classify as...
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