To determine implicit assumption about the volatility of the stock's rate of return over the next year using the given information.

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Chapter 21, Problem 50PS

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To determine implicit assumption about the volatility of the stock's rate of return over the next year using the given information.

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Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while the market risk premium (rM − rRF), is expected to fall. Given this forecast, which of the following statements is CORRECT? a. The required return on all stocks will remain unchanged. b. The required return will fall for all stocks, but it will fall more for stocks with higher betas. c. The required return for all stocks will fall by the same amount. d. The required return will fall for all stocks, but it will fall less for stocks with higher betas. e. The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.

During the coming year, the market risk premium (rm− rf), is expected to remain the same, while the risk-free rate, rf, is expected to fall. Given this forecast, which of the following statements is CORRECT? Group of answer choices The required return will fall for all stocks, but it will fall less for stocks with higher betas. The required return will fall for all stocks, but it will fall more for stocks with higher betas. The required return on all stocks will remain unchanged. The required return for all stocks will fall by the same amount. The required return will increase for stocks with a beta less than 1.0 and will decrease for stocks with a beta greater than 1.0.

Suppose that the annual return for particular stock follows the same distribution every year, and that the return for any given year is independent of the returns for any prior years. Based on an analysis of the stock's annual returns over an 12 year period, it is determined that the 95% confidence interval for the stock's expected annual return is given by (-0.1724, 0.2861). Find the volatility of the stock. Use the approximation formula from Berk and DeMarzo. 38.52% 40.90% 42.09% 37.32% 39.71%