An analyst fits a Single Index Model for Stock XYZ and found that Alpha is 1% and Beta is 0.5, if the return of the market is 13%, rate of return predicted for Stock is a. 7.5% b. 10% c. 13% d. 1%

Q: Which one of the following stocks is correctly priced if the risk-free rate of return is 4.1 percent…

A: We will apply the CAPM model here. CAPM stands for Capital Asset Pricing Model.

Q: A stock is expected to have an alpha of 1.70%, an expected return of 8.02%, and a standard deviation…

A: The standard deviation of the non-systematic component of the stock's return under the single index…

Q: A and 40% B. Compute the coefficient Estimate the market model equations for both stocks and

A: ERi​=Rf​+βi​(ERm​−Rf​) where:ERi​=expected return of investment Rf​=risk-free rate βi​=beta of the…

Q: Stocks A and B have the following probability distributions of expected future returns: Probability…

A: Standard Deviation mesaure the risk which is involved in earning the return from the stock. lower…

Q: Consider the following stocks. Stock Expected return Std. Deviation Beta A 15.9% 27.8% 0.93…

A: Sharpe ratio = (Expected return - Risk free rate of return) / Standard deviation

Q: What are the expected returns for stocks Y and Z under the conditions shown below?   A0 0.04…

A: Calculation of Expected Return for Stock Y:

Q: What is the covariance and the correlation coefficient between HD and ML? xx

A: Given standard deviation of market index σM =0.15 Therefore, the variance of market index is σM2 =…

Q: Given the following information, determine the beta coefficient for Stock L that is consistent with…

A: According to capital asset pricing model Expected return on stock = Risk free rate+Beta×Market…

Q: Assume the following data for a stock: Risk - free rate market) == 1.5; beta (size) = 0.3; beta…

A: To calculate the expected return on the stock using the Fama-French three-factor model, we need to…

Q: 1. Consider 3 stocks A, B, and C and the risk-free rate RF=0.5%. The logarithmic rates of return are…

A: Hi, since you have posted multiple questions and the first uestion has multiple sub-parts. We will…

Q: 3. You have gathered average return and standard deviation data for five stocks (A-E). How have…

A: Coefficient of variation shows the risk -reward trade off between the return and risk of the stock…

Q: Consider 3 stocks A, B, and C and the risk-free rate RF-0.5%. The logarithmic rates of return are as…

A: “Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: Consider the following probability distribution for stocks A and B: State Return on Stock A 1 10% 2…

A: Correlation is a statistical measure that is used in finance to estimate the degree to which two…

Q: Percentages need to be entered in decimal format, for instance 3% would be entered as .03. That is…

A: Note: Return of the stock is taken what was provided in the previous question. Please adjust the…

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

A: Treynor measure = (RP-RF) / BETA.

Q: Suppose that the index model for two Canadian stocks HD and ML is estimated with the following…

A: From the 2 equations, beta of stock HD and ML can be determined

Q: Consider the three stocks in the following table. Pt represents price at time t, and Qt represents…

A: In a market value-weighted index, companies with larger market caps are given a higher weight in the…

Q: An analyst gathers the following data: * Expected (estimated) rate of return on the market = 15% *…

A: Expected (estimated) rate of return on the market = Rm =15%Risk Free Rate = Rf = 8%Expected…

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

A: ParticularsStock AStock BBeta1.201.50R-square0.250.15σM16%Weight0.700.30

Q: Which one of the following stocks is correctly priced if the risk-free rate of return is 3.0 percent…

A: In this question, we are required to determine the stock which is correctly priced.

Q: Suppose that the index model for two Canadian stocks HD and ML is estimated with the following…

A: Systematic risk refers to the risk that the market or the industry faces as a whole and which is…

Q: The resulting SML equation for Laternios is given by: Er Laternios + = X (E[rM] - rf)

A: Regression analysis on a stock provides insights into the relationship between the stock's returns…

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

A: Portfolio risk:Portfolio risk encapsulates the inherent uncertainty and volatility associated with…

Q: A stock's returns have the following distribution: Probability Rate of Return 0.1 -25% 0.2 0.4 0.2…

A: To calculate the coefficient of variation, we first determine the expected return, followed by…

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

A: The standard deviation of a portfolio is a statistical measure of the variability or volatility of…

Q: Calculate the expected rate of return, , for Stock B ( = 12.00%.) Do not round intermediate…

A: Expected Return = Σ of Probability X Return ProbabilityReturnStock AStock BStock AStock…

Q: Find the Beta for Stock Y given the Expected Return of Stock Y is 18.4% The expected return on the…

A: A stock with a beta higher than 1.0 fluctuates far more than the market with age. The beta of a…

Q: 8. (Portfolio of two stocks) The following spreadsheet presents data for stocks A and B. A B C 1 2…

A: Step 1:The return of portfolio is the weighted average return of Stock A and Stock B. Standard…

Q: Required Rate of Return Stock R has a beta of 1.8, Stock S has a beta of 0.35, the expected rate of…

A: Beta coefficient shows the systematic risk of the assets. The beta factor shows the systematic risk…

Q: Consider the following probability distribution for stocks A and B: State Probability Return on…

A: It is a problem that discusses the real interest rate and the factors that affect interest rates.

Q: Given the following information, determine the beta coefficient for Stock L that is consistent with…

A: Risk free rate 5.5% Market rate 10.5%

Q: Asset X Asset Y E(R) = 8% E(R,) - 18% E(s.) = 7% E(s,) - 25% Calculate the expected return and…

A: Hi! Thank you for the question, As per the honor code, we are allowed to answer one question at 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: Use the following information on Stocks X and Y to answer questions 1 through 3 (round to the…

A: Standard deviation= Sqrt (summation of all 3 markets ( return - expected return)^2* probability)

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

A: The degree by which the stock returns will deviate or move along in the same direction as changes in…

Q: You have the following information: A B с Alpha 1.85% 2% -2.36% 0% Beta 1.36 0.95 1.98 1 Res. 2.00%…

A: The single index model: The single index model expresses the total returns of a portfolio as the…

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: The next year's return on stock X is expected to be either -7% with probability 0.2 or 20% with…

A: In finance when we look at returns figures we often compute standard deviation as well.   Standard…

Q: Stocks A and B have the following probability distributions of expected future returns: Probability…

A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

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

A: Subpart (i) = Alpha (stock A) = 1%Alpha (stock B) = 2%Subpart (ii) = Information Ratio=…

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…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.