Individuals using a value investing strategy search for stocks that: a) have a well-established record of paying steady dividends. () b) have generated high rates of retun for at least five years. ) C) are less risky than most other stocks d) are underpriced in the market.
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- Assume that you regularly invest in stocks. Explain (using intuition instead of math) how your portfolio of stocks would be affected in response to a higher risk-free rate according to the CAPM. Explain how your portfolio of stocks might be impacted during the economic growth(a) (i) Calculate the expected returns and standard deviations of Stock Alpha and Stock Beta. (a) (ii) Assuming that Jerry Tan is a risk-adverse investor, recommend which stock he should select for long term investment. (b) Suppose that Jerry Tan has surplus funds to invest in both stocks, Alpha and Beta. He has decided to form a portfolio with investment in both stocks. The correlation coefficient between the expected return of both stocks is 0.8 and the weightage of investment is 40% for Stock Alpha and 60% for Stock Beta. Required:(i) Compute the expected return, Standard Deviation and Variance of the portfolio. (c) Explain the specific risk and market risk in details, which affecting a company or a group of companies that represent a sector of the stock market. (d) Give THREE (3) reasons why airlines and machine tool manufacturers have substantial macro and market risks.What are the benefits of investing and trading in the stock market? “The track record of the stock market also shows that a good basket of stocks climb more often than decline - reducing risk over the long-term.” Explain this statement.
- PART A,B and C are completed. need help in D and E. TIA Unique vs. Market Risk. The figure below shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given besides its plot. A. Which stock is riskiest to a diversified investor? B. Which stock is riskiest to an undiversified investor who puts all her funds in one of these stocks? C. Consider a portfolio with equal investments in each stock. What would this portfolio’s beta have been? D. Consider a well-diversified portfolio made up of stocks with the same beta as Exxon. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20 percent. E. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8 percent. The risk-free rate of interest is 4 percent.Which one is correct answer please confirm? Studies analyzing the historical returns earned by common stock investors have found that the returns from average risk common stock investments over very long time periods have averaged approximately ____ percentage points ____ than holding period returns on corporate debt issues. a. 5.7; higher b. 5.7; lower c. 7.5; higher d. 7.5; lowerExploring Finance: Betas and Stock Volatility. Betas: Stock Volatility Conceptual Overview: Explore how stock volatility relates to the beta coefficient b risk measure. The tendency of a stock to move with the market is measured by its beta coefficient, b. When first loaded, the graph shows the line for an average stock, which necessarily matches the market return. In a year when the market returns 10%, the average stock returns 10%. And in a year when the market goes down -10%, the average stock goes down -10% also. The slope of the line for the average stock is b = 1.0. A more volatile stock would change more extremely. Drag the line vertically so that it has a slope of b = 2.0. For this more volatile stock, in a year when the market returned 20%, the volatile stock did better with a 30% return, and when the market lost -10%, the volatile stock lost big with a -30% change. Now drag the line so that it has a slope of b = 0.5. This stock is less volatile than the average stock and…
- “The track record of the stock market also shows that a good basket of stocks climb more often than decline - reducing risk over the long-term.” Explain this statement.. Assume an investor uses the constant-growth DVM to value a stock. Listed are various situations that could affect the computed value of a stock. Look at each one of these individually and indicate whether it would cause the computed value of a stock to go up, go down, or stay the same. Briefly explain your answers. Dividend payout ratio goes up. Stock’s beta rises. Market return increases.Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?
- A stock’s contribution to the market risk of a well-diversified portfolio is called risk. It can be measured by a metric called the beta coefficient, which calculates the degree to which a stock moves with the movements in the market. Based on your understanding of the beta coefficient, indicate whether each statement in the following table is true or false: Statement True False Stock A’s beta is 1.0; this means that the stock moves in the same direction and magnitude as the market. A stock that is more volatile than the market will have a beta of more than 1.0. Higher-beta stocks are expected to have lower required returns.(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.20 0.60 0.20 Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.) Common Stock B Return 13% 14% 18% Return - 6% 7% 15% 21% a. Given the information in the table, the expected rate of return for stock A is 14.6 %. (Round to two decimal places.) The standard deviation of stock A is %. (Round to two decimal places.). Assume an investor uses the constant-growth DVM to value a stock. Listed are various situations that could affect the computed value of a stock. Look at each one of these individually and indicate whether it would cause the computed value of a stock to go up, go down, or stay the same. Briefly explain your answers. Dividend payout ratio goes up. Stock’s beta rises. Market return increases. Assume throughout that the current dividend (D0) remains the same and that all other variables in the model are unchanged.