GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
11th Edition
ISBN: 9781260201550
Author: Bodie
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 8, Problem 15PS
A
Summary Introduction
To calculate: The value of the adjusted beta of the stock.
Introduction: The value of beta is used to calculate the systematic risk of the stock. This risk is unpredictable in nature and cannot be removable. The value of beta is always unity.
B
Summary Introduction
To calculate: The predicted beta value for the next year.
Introduction: To calculate the value of systematic risk of the portfolio, beta value is used. Systematic risks are unavoidable in nature. It is known as the diversified risk or market risk.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose the following equation best describes the evolution of β over time:
t = 0.18 + 0.63βt – 1.
If a stock had a β of 1.09 last year, you would forecast the β to be _______ in the coming year.
A. 0.18
B. 0.63
C. 0.87
D. 0.81
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.
5. Given the following expectations for the next year, what is the expected return, standard deviation,
and beta of Stock A? Use the excel sheet we covered to find the answer.
Returns
Probability
Stock A
Market
0.10
0.05
0.02
0.25
0.09
0.08
0.30
0.13
0.12
0.25
0.19
0.15
0.10
0.21
0.16
Chapter 8 Solutions
GEN COMBO LOOSELEAF INVESTMENTS; CONNECT ACCESS CARD
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- i need the answer quicklyarrow_forwardA challenge we run into when forecasting future stock returns is that stock returns compound. So, when using historical averages to forecast the future, we need to average together the arithmetic and geometric average returns using Blume's Formula: R(T) = T GeoAvg + NT Arith Avg N-1 In this formula, N is the number of historical annual returns you are using to calculate your averages and T is the number of future annual returns you are forecasting. Suppose you gather the following prices for a stock in order to calculate the last 10 (N = 10) annual returns. The stock does not pay dividends. Time 0 1 Time 0 calculate the last 10 (N=10) annual returns. The stock does not pay dividends. 1 2 3 4 5 10 6 . 7 8 9 10 Price $23.16 $32.81 Price $23.16 $32.81 $33.63 $36.83 $41.95 $41.04 $33.83 $37.45 $30.56 $29.90 $47.93 Using Blume's formula, what is the expected return per year for the next 4 years (T = 4)? Enter your answer as a percentage, rounded to the nearest 0.0001. For example, for…arrow_forwardSuppose that S = $100, K = $100, r = 0.08, σ = 0.30, δ = 0, and T = 1. Construct a standard two-period binomial stock price tree using the method in Chapter 10. consider stock price averages computed by averaging the 6-month and 1-year prices. What are the possible arithmetic and geometric averages after 1 year? Construct a binomial tree for the average. How many nodes does it have after 1 year? (Hint: While the moves ud and du give the same year-1 price, they do not give the same average in year 1.) What is the price of an Asian arithmetic average price call? What is the price of an Asian geometric average price call?arrow_forward
- Suppose you estimate that the correlation between Abercrombie and Fitch (ANF) stock returns with market portfolio returns is 0.85. You also estimate that ANF's stock return's are twice as variable (σANFσM=2.0). Therefore, what is the the beta for ANF stock (βANF) ?arrow_forwardAssume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 2.36. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format. For example, if you answer is 3.33%, enter "0.0333"arrow_forwardAssume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 1.25. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format, to 4 decimal places. For example, if you answer is 3.33%, enter "0.0333".arrow_forward
- Consider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?arrow_forwardEXPECTED RETURNS Stocks A and B have the following probability distributions of expected future returns: Probability 0.1 0.2 0.4 0.2 0.1 A (10%) 2 12 20 38 B (35%) 0 20 25 45 a. Calculate the expected rate of return, f, for Stock B (₁ = 12%). b. Calculate the standard deviation of expected returns, σ, for Stock A ( = 20.35%). Now calculate the coefficient of variation for Stock B. Is it possible that most investors will regard Stock B as being less risky than Stock A? Explain. c. Assume the risk-free rate is 2.5%. What are the Sharpe ratios for Stocks A and B? Are these calculations consistent with the information obtained from the coefficient of variation calculations in part b? Explain.arrow_forwardStocks A and B have the following probability distributions of expected future returns: a. Calculate the expected rate of return, B, for Stock B (A = 12.50%.) Do not round intermediate calculations. Round your answer to two decimal places. % b. Calculate the standard deviation of expected returns, GA, for Stock A (σ = 20.90%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? I. If Stock B is more highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be less risky in a portfolio sense. II. If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. III. If Stock B is less highly correlated with…arrow_forward
- The next year's return on stock X is expected to be either -7% with probability 0.2 or 20% with probability 0.8. Find the stnadard deviation of the returns. a.12.37% b.11.10% c.12.88% d.11.69% e.10.80%arrow_forwardStocks A and B have the following probability distributions of expected future returns: profitability A B 0.1 11% 27% 0.2 3 0 0.4 12 20 0.2 24 28 0.1 36 43 Calculate the expected rate of return, , for Stock B ( = 12.70%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.54%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be…arrow_forwardStock A has a correlation with the market of 0.53. Assuming that the standard deviation of returns for Stock A is 24.0% and that the standard deviation of returns for the market is 10.0%, what is beta for stock A? A 1.31 B. 1.27 C. 0.17 D. 0.22arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY