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. 1345

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. 1345

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: An analyst fits a Single Index Model for Stock XYZ and found that Alpha is 1% and Beta is 0.5, if…

A: Alpha = 1% Beta = 0.50 Market return = 13%

Q: Historical nominal returns for a company have been 16% and -40%. The nominal returns for the market…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: Consider the rate of return of stocks ABC and XYZ. Year rABC rXYZ 1 20 % 28 % 2 8 11 3 16…

A: Given:

Q: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market…

A: Computation:

Q: 3. Consider three stocks A, B and C and a market index M with the following prices: Year то T1 T2…

A: Note: This question has several sub-parts. The first three have been answered below

Q: Consider the two (excess return) index-model regression results for stocks A and B. The risk-free…

A: Generally, investor invest in different stocks to reduce the risk. Each stock has its own measures.…

Q: Consider the following information: Probability of State of Economy 0.54 0.46 State of Rate of…

A: Expected return refers to the anticipated amount of profit or loss that an investor calculates from…

Q: And what are the expected returns for stocks A and B if the conditions are as follows? A0 0.03…

A: Calculation of Expected Return for Stock A:

Q: Consider a portfolio 30% of which is invested in stock A and 70% invested in ETF mimicking the…

A: Beta = (correlation * SD of Stock ) / SD of market Where SD of Stock = SD of Stock A = 35% SD of…

Q: The following three stocks are available in the market: E(R) β Stock A 10.9 % 1.18…

A: Given the following information Expected return of Stock A: 10.9%Beta of Stock A: 1.18 Expected…

Q: The following are estimates for two stocks. Stock Expected Return Beta Firm-Specific Standard…

A: Here, Standard Deviation of Market is 22% Risk-free rate is 11% Expected Return, Beta and…

Q: Consider the two (excess return) index-model regression results for stocks A and The risk-free…

A: William F. Sharpe, a Nobel Laureate, devised the Sharpe ratio, which is used to help investors…

Q: c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: The question is based on the concept Capital asset pricing model (CAPM) and beta of a stock, the…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: The question is based on the concept of co-variance calculation between stock and market index , in…

Q: a) Historical nominal returns for Coca-Cola have been 8% and -20%. The nominal returns for the…

A: Part (a): Calculation of beta for Coca-Cola: Answer: The value of beta for Coca-Cola is -0.65

Q: Stock Number of shares Stock Price Beta A 750 33 1.2 B 220 51 0.8 C 460 19 1.4 Economic condition…

A: Since, it's a lengthy question only part a is solved. Kindly upload part b separately. Solution:…

Q: Historical nominal returns for Coca-Cola have been 8% and -20%. The nominal returns for the market…

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…

Q: The following three stocks are available in the market: E(R) Beta Stock A 11.3% 1.22 Stock B…

A: Given the following information Expected return of Stock A: 11.3%Beta of Stock A: 1.22 Expected…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: The mathematical equation for correlation computation is:

Q: Consider the following information about three stocks: Rate of Return If State Occurs Probability of…

A: Hi There, Thanks for posting the question. As per Q&A guidelines, the solution for first three…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Covariance is a statistical measure used to analyze the relationship between two variables.…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: From the equation of return for A and B: Beta of A = 1.25 Beta of B = 1.60 Standard deviation of…

Q: The following information describes the expected return and risk relationship for the stocks of two…

A: a.

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Given: Constant Beta Standard deviation Proportions A 2.60% 0.9 21% 0.7 B -2.00% 1.2 12%…

Q: Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here,…

A: In the given question we are required to calculate the Required rate of return of three stocks i.e.…

Q: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market…

A: Market return is 12% return on the SMB portfolio (rSMB) is 2.1% return on the HML portfolio (rHML)…

Q: Michael, an analyst at Kitsch Partners (KP), models the stock of the company. Suppose that the…

A: Correct answer is option (d) 13.98%.

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: The beta of A is 0.45 Beta of B is 1 The SD of A is 0.28 SD of B is 0.21 SD of market is 16%. Weight…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Given: Constant Beta Standard deviation Proportions A 2.60% 0.9 21% 0.7 B -2.00% 1.2 12%…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Given: RA = 4.0% + 0.50RM + eA RB = –1.2% + 0.70RM + eB σM = 17% R-squareA = 0.26 R-squareB = 0.18…

Q: a. What is the standard deviation of portfolio Q? (Calculate using numbers in decimal form, not…

A: “Since you have posted a question with multiple subparts, we will solve first three subparts for…

Q: a) Historical nominal returns for Coca-Cola have been 8% and -20%. The nominal returns for the…

A: “Since you have asked multiple questions, we will solve the one question for you. If you want any…

Q: Suppose the riskless return is 4½% and the factor sensitivities and factor return premiums for…

A: Required returns = Rik less Return + (Factor Sensitivity * Expected Factor Return Premiums)

Q: 1. The following table presents the expected returns of three stocks and the risk free rate. Stock A…

A: Portfolio means a bunch of assets or investments. To reduce the risk, investors invest their funds…

Q: Stock A has an expected return of 12% and a standard deviation of 35%. Stock B has an expected…

A: Expected return on portfolio is the weighted average return on stocks in the portfolio and can be…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: The measure of amount of variation of a set of values is called as standard deviation. It is the sum…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: The expected return is the return of the portfolio which is the sum of each potential return that is…

Q: An investor has the following expectations on the performance of Stock X and Stock Y: Probability…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

Q: Suppose you are given the following information about 2 stocks, what is the return standard…

A: The degree of data dispersion from the mean is indicated by the standard deviation. Standard…

Q: A stock has an expected return of 11.85 percent, its beta is 1.08, and the risk-free rate is 3.9…

A: Investors have different options to make investments, and the motive behind investments is to…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Given information: Beta of stock A is 1.30 Beta of stock B is 1.60

Q: a) Historical nominal returns for Coca-Cola have been 8% and -20%. The nominal returns for the…

A: Beta= Change in security return/ Change in market return = (-20%-8%)/(28%-(-15%)) = -28%/43% =…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Formulas:

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Variance of Stock: volatility of stock is measured by variance of stock How much a stock tends to…

Q: Suppose that the PSE composite index will move from 3,500 to 4,266 and rate for T-bills is 5%. The…

A: Composite Index Starting Position = 3500 Composite Index Closing Position = 4266 Risk Free Rate…

Question

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. 1345

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The index model for stocks A and B is estimated from excess return with the following results: RA = -0.01 +0.8RM RB = 0.04 + 1.1RM R-squared 4 = 0.15 R-squared B = 0.3 Market-index risk (oM) is 0.2
The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 0.03 + 0.7 RM + eA RB = -0.02+ 1.2 RM + eB σM =0.20; R-square A = 0.25 R-square B = 0.20 What is the standard deviation of A & B, respectively? Group of answer choices 0.54, 0.28 0.28, 0.54 0.45, 0.50 0.50, 0.45
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What is the covariance between each stock and the market index?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA - 2.60 + 0.90RM + CA Rg- -2.00 + 1.20RM + eg OM- 26, R-equarea 0.21; R-squaren 0.12 Assume you create portfolio Pwith investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfollo? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolio beta c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.) Firm-specific
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What is the standard deviation of each stock?
2. Suppose that the market model for stocks A and B is estimated with the following results: RA = 1% +0.9*RM+EA RB = -2% + 1.1*RM+EB The standard deviation of the markets returns is 20% and firm specific risk (standard deviation) equals 30% for A and 10% for B. a. Compute the risk (standard deviation) of each stock and the covariance between them. Suppose we form an equally weighted portfolio of stocks A and B. What will be the nonsystematic standard deviation of that portfolio? b.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 3.60% +1.20RM + еA RB -1.60% + 1.50RM + еB OM = 16%; R-squareд = 0.25; R-squareB = 0.15 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B. a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.) Portfolio beta c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.) Firm-specific d. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.) Covariance
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.60% + 0.90RM + eA RB = -2.00% + 1.20RM + eB OM = 26%; R-squarea = 0.21; R-squareg = 0.12 Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.
Suppose 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 x
Consider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% Calculate covariance and coefficient of correlation between the returns of thestocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfoliocomprising of $45,000 invested in stock A and remaining amount in stock B.Calculate risk and return of your portfolio.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.50% + 0.65RM + еA RB ом = -1.60% +0.80RM + eB = = 21%; R-squareд 0.22; R-squareg = 0.14 Assume you create a portfolio Q, with investment proportions of 0.50 in a risky portfolio P, 0.30 in the market index, and 0.20 in T-bill. Portfolio P is composed of 60% Stock A and 40% Stock B. Required: a. What is the standard deviation of portfolio Q? 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 intermediate calculations. Round your answer to 2 decimal places. b. What is the beta of portfolio Q? 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 intermediate calculations. Round your answer to 2 decimal places. c. What is the "firm-specific" risk of portfolio Q? Note:…

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS