Requirement 1
To Calculate:
The
Introduction:
Stock exchanges are markets where securities can be bought as well as sold. New York Stock Exchange is one amongst the several markets where the investors can sell their shares or they could purchase their shares or stocks.
Stock Market Indexes are indicators of performance of the stock market.
Dow is the best known measure of the stock market performance.
Price weighted method, equally weighted method, market value weighted method are some of the methods used.
Requirement 2
To Calculate:
The rate of return of a equally-weighted index of three stocks for the period t=0 to t=1
Introduction:
Stock exchanges are markets where securities can be bought as well as sold. New York Stock Exchange is one amongst the several markets where the investors can sell their shares or they could purchase their shares or stocks.
Stock Market Indexes are indicators of performance of the stock market.
Dow is the best known measure of the stock market performance.
Price weighted method, equally weighted method, market value weighted method are some of the methods used.
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- Given the following information on five stocks, construct: a. A simple price-weighted average b. A value-weighted average c. A geometric average d. What is the percentage increase in each average if the stock prices change to those in Column I? e. What is the percentage increase in each average if the stock prices change from those in the Price column to those in Column II? f. Why were the percentage changes different in parts (d) and (e)? g. If you were managing a fund and wanted a source to compare your results to, which of the three averages would you prefer to use, and why? Stock Price # of Shares I II A B C D E F $12.00 150,000 $14.00 125,000 $11.00 200,000 $ 22.00 80,000 $8.00 30,000 $29.00 140,000 $12.00 $12.00 $14.00 $14.00 $20.00 $11.00 $ 22,00 $ 22.00 $8.00 $15.00 $29.00 $29.00arrow_forwardUsing the data in the following table,, estimate the: a. Average return and volatility for each stock. b. Covariance between the stocks. c. Correlation between these two stocks.arrow_forwardUsing the data in the chart, calculate the first-period rates of return on the following indexes of the three stocks: A market-value-weighted index. An equally weighted index. stocks P0 Q0 P1 Q1 P2 Q2 A 90 100 95 100 95 100 B 50 200 45 200 45 200 C 100 200 110 200 55 400 (Pt represents price at time t, and Qt represents shares outstanding at time t.)arrow_forward
- Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? (picture)arrow_forwardWhat is the price-weighted index of the following three stocks?arrow_forwardSuppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 3.2% + 1.10RM + eA RB = -1.4 % + 1.25RM + eB OM= 30%; R-squareд = 0.28; R-squareg = 0.12 What is the covariance between each stock and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round your intermediate calculations. Round your answers to nearest whole number. Answer is complete but not entirely correct. Stock A Stock B Covariance 93 x 101 xarrow_forward
- In evaluating (stock) portfolio return we use the market values at the beginning of the period to compute the weighting. Explain why.arrow_forwardThe Black-Scholes OPM is dependent on which five parameters? Select one: a. Stock price, exercise price, risk free rate, beta, and time to maturity b. Stock price, risk free rate, beta, time to maturity, and variance c. Stock price, exercise price, risk free rate, standard deviation and time to maturity d. Stock price, risk free rate, probability, standard deviation and exercise pricearrow_forward(a) the expected returns of the stocks A and B.arrow_forward
- The index model has been estimated for stocks A and B with the following results: RA = 0.12 + 0.610RM + eA RB = 0.04 + 1.416RM + eB σM = 0.270 σ(eA) = 0.20 σ(eB) = 0.10 What is the covariance between each stock and the market index?arrow_forwardThe metric that is used to show the extent to which a given stock’s return move up and down with the stock market? a. Correlation b. Beta c. Standard deviation d. Expected returnarrow_forwardFrom the information attached below, calculate: a. the average stock return from 20x1- 20x3. b. The standard deviation over the same period.arrow_forward
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