(A) Adequate information The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5. To determine: The best advisor that stands to be a better selector pertaining to an individual stock Introduction: Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

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Answer 1

Question

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

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Students have asked these similar questions

Two investment advisers are comparing performance. One averaged a 19% rate of return and the other a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the second was 1. a) Can you tell which investor was a better selector of individual stocks (aside from the issue of general movements in the market)? b) If the T-bill rate were 6% and the market return during the period were 14%, which investor would be the superior stock selector? c) What if the T-bill rate were 3% and the market return were 15%?

Two stock investment advisers are comparing performance. The first averaged a 19% rate of return and the second a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the second investor was 1.(a) Can you tell which investor was a better selector of individual stocks (aside from the issue of general movements in the market)? Explain your answer carefully.(b) If the T-bill rate was 3% and the market return during the period was 15%,which investor would be considered the superior stock selector?

Barry wishes to compute the beta of a stock that has a correlation of 0.64 with the market. The following data is available: Standard Deviation of Returns of Stock = 14.1%. Standard Deviation of Returns of Market = 9.44%. 1) Calculate the beta of the stock 2) If the risk free rate is estimated to be 3%, market return 9% and given the beta that you calculated in question 1, what is the expected return of the stock? 3) If the actual return next year turned out to be 10% what is the Jensen's alpha? Is Barry, the investor happy or disappointed? 4) Using data for the stock presented and/or calculated above, what is the Sharpe ratio? When is this measurement appropriate? 5) Using data for the stock presented and/or calculated above, what is Treynor measure? When is this measurement appropriate?

Answer 2

Question

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

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Answer 3

Question

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Expert Solution & Answer

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Answer 4

Question

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Expert Solution & Answer

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Answer 5

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Answer 6

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Answer 7

Chapter 9, Problem 20PS

Summary Introduction

(A)

Adequate information

The performance of the stock is compared by two investment advisers. One advisor projected return of 16%, whereas another projected return of 19%. The beta of second adviser was 1 and first adviser was 1.5.

To determine:

The best advisor that stands to be a better selector pertaining to an individual stock

Introduction:

Stock stands to be the general term which is taken into consideration for describing the company's ownership certificates. On the other hand share refers to the company's stock certificate. When a share of a particular company is held by an investor, he is known as a shareholder.

Answer 8

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Answer 9

Summary Introduction

(B)

To determine:

Which selector stands to be a better stock selector amongst the two when the return from market accounts for 14% and the T-bill rate tends to be 6%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words, abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Answer 10

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Answer 11

Summary Introduction

(B)

To determine:

Which selector stands to be better stock selector amongst the two when the return from market accounts for 15% and the T-bill rate tends to be 3%.

Introduction:

The abnormal return reflects the difference underlying the predicted return and the actual return by the security market line. In other words abnormal return is used to represent the returns ascertained from a portfolio or security over given time period that stand to be different from the expected return.

Answer 12

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Answer 13

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Answer 15

Ch. 9 - Prob. 1PS Ch. 9 - Prob. 2PS Ch. 9 - Prob. 3PS Ch. 9 - Prob. 4PS Ch. 9 - Prob. 5PS Ch. 9 - Prob. 6PS Ch. 9 - Prob. 7PS Ch. 9 - Prob. 8PS Ch. 9 - Prob. 9PS Ch. 9 - Prob. 10PS

Solution Summary: The author explains that the abnormal return reflects the difference underlying the predicted return and the actual return by the security market line.

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