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- An ideal value-relevant attribute is one for which the correlation coefficient of the values of the attribute and the stock prices is Group of answer choices a. +2.0 b. zero c. +1.0 d. -1.0Consider the following regression Pt * - Pt = .07(1.4) + .4*Pt (3.6) + et where Pt * is Shiller’s ex post price of a stock, Pt is the actual price and t-ratios are in brackets. Explain in words and analytically what the dependent variable Pt * - Pt should be equal to under the efficient markets theory. Hence interpret the regression. Does it support the efficient markets theory?The expected value, standard deviation of returns, and coefficient o below.) \table[[Asset A],[Possible Outcomes,Probability,Returns (%)
- a. Calculate the expected return for a share in S. b. Calculate the standard deviation of a share in S.3) The return on a stock, in a factor model, in a given period will be related to A) firm-specific events. B) macroeconomic events. C) the error term. D) both firm-specific events and macroeconomic events. E) neither firm-specific events nor macroeconomic events. 4) Assume the index model is valid, what inputs will be required to determine covariance between two assets? A) βk B) βL C) σM D) all of the options E) None of the options are correct.Choose the correct answer with justification.Stocks A and B have the following data. Assuming the stock marketyls efficient and the stocks are in equilibrium, which of the following statements is CORRECT? \table[[,A,B
- The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line equals to____. Select one: A. Beta; Sharpe Ratio B. Market Risk Premium; Sharpe Ratio C. Risk free rate; Volatility D. Market Risk Premium; Volatility(c) Consider information given in the table below and answers the question asked thereafter: i. Calculate expected return on each stock? On the basis of this measure, which stock you will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?iv. Calculate covariance and coefficient of correlation between the returns of the stocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio. (d) Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate…Read the box “The ‘Beta’ of a Stock” in the attachment.a. Suppose that the value of β is greater than 1 for a particular stock.Show that the variance of (R - Rf) for this stock is greater than thevariance of (Rm - Rt).b. Suppose that the value of β is less than 1 for a particular stock. Is itpossible that variance of (R - Rf) for this stock is greater than thevariance of (Rm - Rt)? (Hint: Don’t forget the regression error.) c. In a given year, the rate of return on 3-month Treasury bills is 2.0%and the rate of return on a large diversified portfolio of stocks (theS&P 500) is 5.3%. For each company listed in the table in the box,use the estimated value of β to estimate the stock’s expected rate ofreturn.
- 1. Definitions (S9.1-S9.3) Define the following terms:Suppose stock A's return is related to the market return by: RetA=0.6*Market Return + 0.04* (Market Return)² What is the change in stock A given a change in the market return? Suppose stock B's return is related to the market return by: RetB=0.6*Market Return What is the difference in returns between A and B if the market return is 5%? What is the difference if the market return is -5%?When finding the covariance, should 2 stocks be used or can it be calculated using 1 stock and the market returns?