7. Calculating Returns and Standard Deviations [LO1] Based on the following information, calculate the expected return and standard deviation for Stock A and Stock B:
Q: QUESTION 8 The market risk measure in the CAPM is: O Alpha O Beta O The standard deviation of HPRS O…
A: Note: This post has two distinct questions. The first, Q8 has been answered below.
Q: Stocks X and Y have the following probability distributions of expected future returns: Calculate…
A: Standard deviation: The standard deviation is a measurement of the variance or dispersion of a set…
Q: if stock 1 provides 10% rate of return and stock 2 expects 30% rate of return. what can we say about…
A: The efficient market hypothesis is the market theory that is very prominent in investment strategies…
Q: Suppose rRF = 9%, ľM = 14% and b; = 13 What is r;, the required rate of return on Stock i?
A: Given: Risk free return (rRF)=9%Market returnrM=14%Beta coefficient(bi)=13
Q: 2. (a) You have a two-asset portfolio that comprises Stock PY and Stock NY with the following…
A: Portfolio standard deviation is the standard deviation of all the different investments in the…
Q: A stock has a beta of 0.8. Assume that the risk-free rate is 5.5% andthat the market risk premium is…
A: Given that;Risk free rate is 5.5%Beta is 0.8Market risk premium is 6%
Q: which of the following stocks are undervalued, overvalued and fairly valued.
A: The return which is expected to be earned by investing in security is known as the Required Rate of…
Q: Investment Expected Standard Deviation Return Treasury Bill 5% 0% Common Stock 15% 12.85% • So we…
A: The Risk-Return Trade-off hypothesis, which demonstrates the link between the portfolio's risk and…
Q: (b)The market M and Stock J have the following probability distrībutions: State of the economy…
A: Expected rate of return refers to the amount of interest that is received in investment in future.…
Q: The risk-free rate is 4%. The market risk-premium is 7%. The beta is 2.0. What is the expected rate…
A: Financial statements are statements which states the business activities performed by the company .…
Q: LO 1 7. Calculating Returns and Standard Deviations Based on the following information, calculate…
A: Expected rate of return is the profit or loss on the investor that is assumed to be anticipated by…
Q: How to start this question? g) Use the following two stocks. Scenario Probability Stock A Stock B…
A: Stock A: Stock B:
Q: If a stock has a beta of 0.8, what doesthat imply about its risk relative to the market?
A: Beta: Beta can be defined as the measure of instability of a separate stock relative to the…
Q: q1- A share has a beta of 1.2. The risk-free rate of return is 2.0% and the market risk premium is…
A: Using CAPM Model
Q: Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for…
A: Required rate of return is the percentage of profit required from an investment. Formulas: Required…
Q: Assume a stock has a required return on equity, ?? = 12%. The risk-free rate is ?? = 5% and the…
A: The mathematical equation for the concept is:
Q: The covariance between stock A and market return is 135. The standard deviation of market’s return…
A: according to the rule, because you have posted multiple questions, we will answer the first question…
Q: Consider the following information about Stocks X and Y: State of Economy Probability of State Stock…
A: Given: Economy Probability (P) Stock X Stock Y Recession 0.15 0.11 -0.25 Steady 0.55 0.18…
Q: 7. An analyst estimates that a stock has the following probabilities of return depending on the…
A: The expected return of a stock is the expected value of the return based on the probability of…
Q: If the standard deviation of a stock’s return is 5% and its expected return is 8%, what it the C.V.?
A: According to the, because you have posted multiple questions, we will answer the first question…
Q: 3. The risk free rate is 2% and the expected return and standard deviation on the market is 12% and…
A: Risk free Return (Rf ) = 2% Return of Market (Rm) = 12% Standard Deviation of market = 20%
Q: Drawing Examples ven the following information, what is e standard deviation of the returns on is…
A: In this first we have to calculate mean return and deviations from mean and from that.
Q: Answer the questions below using the following information on stocks A, B, and C. A B C…
A: Introduction Required Return Return from a stock inconsideration to the market return and expected…
Q: You are comparing Stock A to Stock B. Given the following information, what is the difference in the…
A: The expected return of stock refers to the return that is anticipated on a stock. Investors…
Q: 4. Assume that the risk-free rate is 5% and the expected return on the market is 12%. What is the…
A: In the given question we are required to calculate required rate of return of stock using given…
Q: USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Stock Rit Rmt ai Beta C 12 10 0 0.8…
A: Abnormal return = Return in excess of market return in the given period = Rit - RmtFor stock C, the…
Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is…
A: The risk-free rate is 5.6%, beta is 2.27 and market risk premium is 8.5%. Capital Asset Pricing…
Q: b) Suppose that you observe the following information in Table 2 for stocks A and B: Table 2…
A: Single index model: Ri=αi+βiRm+ei Ri=excess return over risk free rate
Q: Given the following information, determine the beta coefficient for Stock J that is consistent with…
A: Given Information Return of Stock J (rJ)= 12.5% Risk-Free rate (rRF)=4.5% Expected Return of the…
Q: Use the following table of information: Stock X Stock Y Expected Return 14% 18% Standard Deviation…
A: The term "variance" is referred to as the degree of volatility that a stock have with respect to its…
Q: Which of the following stocks is more risky? Stock J Stock E Return 19% 15% Standard deviation of…
A: Given: Stock J expected return = 19% Standard deviation of stock J = 13% Stock E expected return =…
Q: What are the components of the risk-free rate and What is financial risk? If the standard deviation…
A: According to the rule, because you have posted multiple questions, we will answer the first question…
Q: h) If the standard deviation of a stock’s return is 5% and its expected return is 8%, what it the…
A: given, rstock = 8%σstock =5%
Q: 7. In a small stock market, there are three assets. The corresponding covariance matrix and the…
A: Expected return on portfolio With three assets, the expected return on portfolio is calculated as…
Q: Stocks X and Y have the following probability distributions of expected future returns: Calculate…
A: Here, Probability X Y 0.3 90% -35% 0.4 15% 0 0.3 -60% 20 Expected rate of Return of X…
Q: uppose that you have a stock with a market beta of zero. This means that (A) the stock has no risk…
A: In finance beta is an important risk measurement tool and metric. Beta measures a stock’s risk…
Q: Q4: Assume the following information for stocks A and B. • Expected return on Stock A = 18%. •…
A: The expected return on the stock refers to the minimum required rate on the investment they made in…
Q: Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for…
A: CAPM (capital asset pricing model) equation is useful to find the expected return. Following is the…
Q: 6. Which of the following statements is incorrect? A. The expected risk premium on each investment…
A: Note : We'll answer the first question since the exact one wasn't specified. Please submit a new…
Q: Assume that the risk-free rate is 3.5% andthe market risk premium is 4%. What is the required return…
A: Given: Risk-free rate (rRF) = 3.5% Market risk premium (rM – rRF) = 4% Stock beta (bS) = 0.8
Q: Consider the single-index model. The alpha of a stock is 0%. The return on the market index is 10%.…
A: The beta is the slope of the regression line and estimates the volatility of the stock.
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- 1) what is the expected return rate for stock A 2) what is the expected return rate for stock B 3) what is the standard deviation of returns for stock A 4) what is the standard deviation of returns for stock B.The slope of a regression line when the return on an individual stock's returns are regressed on the return on the market portfolio, would be: OAR BR-₁ B OC none of the answers listed here. ODO im(a) A stock’s returns have the following distribution: Calculate the stock’s expected return, standard deviation, and the coefficient of variation.
- (b) the standard deviation of the returns of the stocks A and BConsider the below graph: E(R₁) E(RM) R₁ stocks M O stocks O What is the slope of the graph? If the historical return of an individual stock is lying the slope then the stock is undervalued or overvalued?Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.
- A price-weighted index such as the DJIA is a geometric mean of current stock prices. a. True b. False(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…Consider 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?
- Exercises: a. The standard deviation of returns is 0.30 for Stock A and 0.20 for Stock B. The covariance between the returns of A and B is 0.006. The correlation of returns between A and B is: b. Explain the differences between systemic risk and unsystematic risk, give additional examples c. Compare and contrast the Capital Market Line and Security Market Line d. The covariance of the market's returns with the stock's returns is 0.008. The standard deviation of the market's returns is 0.08, and the standard deviation of the stock's returns is 0. 11. What is the correlation coefficient of the returns of the stock and the returns of the market? e. According to the CAPM, what is the required rate of return for a stock with a beta of 0.7, when the risk-free rate is 7% and the expected market rate of return is 14%a) Calculate the expected return for Stock Media Prima and Stock Astrob) Calculate the standard deviation for Stock Media Prima and Stock Astroa. The standard deviation of returns is 0.30 for Stock A and 0.20 for Stock B. The covariance betweenthe returns of A and B is 0.006. The correlation of returns between A and B is: