Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) Stock A % Stock A 1% + 1.2 (rm -rf) 0.635 11.3% 22.6% % Stock B % % Stock B 2% +0.8( rm -rf) 0.466 20.1% 26.9% b. Which stock is the best choice under the following circumstances? i. This is the only risky asset to be held by the investor. ii. This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the market-index fund. ii. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns i. Alpha ii. Information ratio iii. Sharpe ratio iv. Treynor measure a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) Stock A % Stock A 1% + 1.2 (rm -rf) 0.635 11.3% 22.6% % Stock B % % Stock B 2% +0.8( rm -rf) 0.466 20.1% 26.9% b. Which stock is the best choice under the following circumstances? i. This is the only risky asset to be held by the investor. ii. This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the market-index fund. ii. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter6: Risk And Return

Section: Chapter Questions

Problem 4P: An analyst gathered daily stock returns for Feburary 1 through March 31, calculated the Fama-French...

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