The following table shows the sensitivity of four stocks to the three Fama-French factors. Assume the interest rate is 2%, the expected risk premium on the market is 7%, the expected risk premium on the size factor is 3.2%, and the expected risk premium on the book-to-market factor is 4.9%.
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- The following table shows the sensitivity of four stocks to the three Fama–French factors. Assume the interest rate is 2%, the expected risk premium on the market is 5%, the expected risk premium on the size factor is 2.9%, and the expected risk premium on the book-to-market factor is 4.7%. Ford Walmart Citigroup Apple Market 1.34 0.74 1.15 1.35 Size −0.17 −0.46 −0.42 −0.57 Book-to-market 0.86 −0.37 0.95 −0.62 Calculate the expected return on each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)The following table shows the sensitivity of four stocks to the three Fama-French factors. Assuming that the interest rate is 4%, the expected risk premium on the market is 7%, the expected risk premium on the size factor is 3,1%, and the expected risk premium on the book-to-market factor is 4.3%. Market Size Ford 1.38 -0.21 0.72 Ford Walmart Citigroup Apple Walmart 0.82 Expected return % % % % -0.42 -0.33 Citigroup 1.19 -0.46 0.99 Apple 1.39 Book-to-market Calculate the expected return on each stock. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. -0.59 -0.72he following table shows the sensitivity of four stocks to the three Fama-French factors. Assuming that the interest rate is 5%, the expected risk premium on the market is 8%, the expected risk premium on the size factor is 3.8%, and the expected risk premium on the book-to-market factor is 3.8%. Ford Walmart Citigroup Apple Market 1.43 0.92 1.24 1.44 Size −0.26 −0.37 −0.51 −0.64 Book-to-market 0.67 −0.28 1.04 −1.02 Calculate the expected return on each stock.
- The following table shows the sensitivity of four stocks to the three Fama–French factors. Estimate the expected return on each stock assuming that the interest rate is 2%, the expected risk premium on the market is 7%, the expected risk premium on the size factor is 3.2%, and the expected risk premium on the book-to-market factor is 4.9%.Suppose that three stocks (A, B, and C} and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)A1 + (0.8)A2 E(RB) = (0.7)A1 + (0.6)A2 E(RC) = (0.3)A1 + (0.4)A2 a. If A1 = 4 percent and A2 = 2 percent, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $30 and will not pay a dividend in the next year. b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.50, $35.00, and $30.50. Create and demonstrate a riskless, arbitrage investment to take advantage of these mispriced securities. What is the profit from your investment? You may assume that you can use the proceeds from any necessary short sale. Problems 13 and 14 refer to the data contained in Exhibit 7.23, which lists 30 monthly excess returns to two different actively managed stock portfolios (A and B) and three different common risk factors (1, 2, and 3). {Note: You may find it…Consider the following information about two stocks (D and E) and two common risk factors (1 and 2) ba 1.6 2.1 Stock D E ba E(R.) 3.1 14.45% 2.1 13.90% a. Assuming that the risk-free rate is 5.5%, calculate the levels of the factor risk premia that are consistent with the reported values for the factor betas and the expected returns for the two stocks. Round your answers to one decimal place Axt Ax b. You expect that in one year the prices for Stocks D and I will be $51 and $39, respectively. Also, neither stock is expected to pay a dividend over the next year. What should the price of each stock be today to be consistent with the expected return levets listed at the beginning of the problem? Round your answers to the nearest cent. Today's price for Stock D: Today's price for Stock E: S Suppose now that the risk premium for Factor 1 that you calculated in Part a suddenly increases by 0.33% 0e, from x to (-0.35%, where is the value established in Part . What are the new expected returns…
- Suppose that index model for Stocks A and B is estimated from excess returns with the following results: Ra= 0.04+0.6Rm+ea, Rb= -0.04+1.3Rm+eb, Risk on the market is 30%, R-squared of A is 30%, R-squared of B is 40%, systematic risk for B is Select one: O a. 1521 O b. 1115 O c.914 O d. 1345Following the Systematic Risk Principle, which of the following stocks has the smallest risk premium? OV (R) = 0.0099: B = 0.50 OV (R) 0.2345; B = 0.75 OV (R) = 0.0022; 3= 1.25 OV (R)= 0.0054; B = 1.00 OV (R) 0.0345; B = 1.50 =Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 4 percent and the expected return for the market is 17 percent. STOCK BETA A 0.63 B 0.95 C 1.48 a. Using the CAPM, the required rate of return for stock A is B.Using the CAPM, the required rate of return for stock b is C.Using the CAPM, the required rate of return for stock C is (Round to two decimal places.)
- 5. Consider the following information about two stocks (D and E) and two common risk factors (1 and 2): Stock Ba Biz E(R₁) 13.1% D 1.2 3.4 E 2.6 2.6 15.4% a. Assuming that the risk-free rate is 5%, calculate the levels of the factor risk-premium that are consistent with the reported values for the factor betas and the expected returns for the two stocks. b. You expect that in one year the prices of for D and E will be $55 and $36. Neither stock is expected to pay a dividend over the next year. What should the price of each stock be today to be consistent with the expected return levels in the table above? c. Suppose that the risk-premium for Factor 1 that you calculated at point a) suddenly increases by 0.25%, i.c., from x% to (x+0.25)%, where x is the value established at a). What are the new expected returns for D and E? d. If the increase in the Factor 1 risk-premium in c) does not cause a change in opinion about what the stock prices will be in one year, how will the current prices…An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?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 Common Stock B Probability Return Probability Return 0.35 13% 0.25 −7% 0.30 17% 0.25 8% 0.35 21% 0.25 15% 0.25 23% (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. Given the information in the table, the expected rate of return for stock A is enter your response here%. (Round to two decimal places.)
