In a regression of the single-index model, the R-square is 66%, residual variance is 0.02, beta estimate is 1.3. What is the variance of the market excess return? Answer: (in decimal format, keep 4 decimal places).
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- In a regression of the single-index model, the R-square is 68%, residual variance is 0.08, beta estimate is 0.7. What is the variance of the market excess return?The returns on assets C and D are strongly correlated with a correlation coefficient of 0.80. The variance of returns on C is 0.0009, and the variance of returns on D is 0.0036. What is the covariance of returns on C and D? Give typing answer with explanation and conclusionThe variance ratio (VR) can be used to determine whether returns satisfy the efficient market hypothesis (EMH). Let n = 5 and r5,t be the five period log return at time t, where t = 1, 2,..., T. 1. Express (r5,t — Ã5) in terms of deviations of the relevant one period log returns from their respective means. Denote 75 to be the mean of the five period log return.
- A probability distribution of possible returns from a share has a variance of 0.0064. What is the standard deviation of this probability distribution? a. 0.08 b. 0.64 c. 8% d. Both (a) and (c)Suppose the index model for stocks A and B is estimated with the following results: rA = 2% + 0.8RM + eA, rB = 2% + 1.2RM + eB, σM = 20%, and RM = rM − rf . The regression R2 of stocks A and B is 0.40 and 0.30, respectively. Answer the following questions. Total: (a) What is the variance of each stock? (b) What is the firm-specific risk of each stock? (c) What is the covariance between the two stocks?In a simple linear regression based on 20 observations, it is found b1 = 3.05 and se(b1) = 1.30. Consider the hypothesis : H0 : β1 = 0 and HA : β1 ≠ 0 . Calculate the value of the test statistic.
- Consider two assets with expected return R1=0.22,R2=0.55and variance are s1=0.80, s2=0.88 and r12=0.55 respectively.A portifolio with weights W1=0.25 and W2= 0.65 is formed calculate the expected return and variance of the portifolioGiven the following information, determine the beta coefficient forStock L that is consistent with equilibrium: r⁄L = 10.5%; rRF = 3.5%; rM = 9.5%.Are the following statements true or false? Provide a short justification for vour answer. а) assets A, B, C, with expected returns and standard deviations: Suppose you are a mean-variance optimizer. The risk-free rate is 3%. There are three risky E [řA] = 10%, SD [řA] = 5% E [řB] = 15%, SD [řB] = 7% E [řc] = 12%, SD [ŕc] = 9% You cannot invest in all three risky assets. Instead, you have to choose whether to invest in only assets (A, B), or only assets (A, C). Asset B mean-variance dominates asset C, since it has higher return and lower standard deviation than asset C. Thus, as long as you are risk-averse, you would always prefer the set of assets (A, B) to the set assets (A, C). b) the same market B's. The covariance matrix between A, B, C is: Suppose the CAPM holds. Consider three stocks A, B, C. Suppose that assets A, B, C have 0.05 0.03 0.03 0.05 0.05 Assets A, B, C have the same variance. However, assets A and B are positively correlated with each other, so they have larger…
- Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.7%; and that the coefficient of variation, CV, is 1.88, answer the following questions: a. Find the standard deviation of returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.Use the following returns for X and Y. Returns Year X Y 1 22.7 % 29.1 % 2 – 17.7 – 4.7 3 10.7 31.1 4 21.4 – 16.4 5 5.7 35.1 a. Calculate the average returns for X and Y. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the variances for X and Y. (Do not round intermediate calculations and round your answers to 6 decimal places, e.g., 32.161616.) c. Calculate the standard deviations for X and Y. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)Calculate the range, the expected rate of return, the variance, and the standard deviation for the problem below: Economic Condition Probability Expected Return Better than expected 0.15 0.65 Good 0.25 0.3 Average 0.45 0.15 Poor 0.1 -0.15 Terrible 0.05 -0.35