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- which of the following past returns should mutual funds publish in their annual reports? A.Excess return B.Geometric average return C.Arithmetric average return D.Index returnSECURITY MARKET LINE You are given the following historical data on market returns, r, and the returns on Stocks A and B, r, and rp: 8A-2 M' A Year 1 29.00% 29.00% 20.00% 2 15.20 15.20 13.10 (10.00) (10.00) 0.50 4 3.30 3.30 7.15 5 23.00 23.00 17.00 31.70 31.70 21.35SECURITY MARKET LINE You are given the following historical data on market returns, r, and the returns on Stocks A and B, r, and r: 8A-2 M' Year 1 29.00% 29.00% 20.00% 2 15.20 15.20 13.10 3 (10.00) (10.00) 0.50 4 3.30 3.30 7.15 23.00 23.00 17.00 6. 31.70 31.70 21.35 The risk-free rate, rp, is 9%. Your probability distribution for r for next year is as follows: M Probability M 0.1 (14%) 0.2 0.4 15 0.2 25 0.1 44 a. Determine graphically the beta coefficients for Stocks A and B. b. Graph the Security Market Line, and give its equation. c. Calculate the required rates of return on Stocks A and B. d. Suppose a new stock, C, with f̟ = 18% and b̟ = 2.0, becomes avail- able. Is this stock in equilibrium; that is, does the required rate of return on Stock C equal its expected return? Explain. If the stock is not in equilibrium, explain how equilibrium will be restored.
- Which asset class has the highest average historical returns and also the highest risk as measured by standard deviation? US treasury bills Large company stocks Small company stocks Long-term corporate bonds Long-term government bondsAstromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…Which of the following statement is true a. Gold generally provides a hedge against inflation over long periods of time b. Capital market is the market for short and long-term fixed income securities c. Investment in real estate is liquid d. Money market is the market for short and long-term fixed income securities
- What is the Relationship between Changes in Interest Rates, Investor Returns, and “Going-In”Cap Rates1. What is the required rate of return for the common equity shareholders using CAPM? 2. Use the year-end 2020 data to compute the market-to-book ratio. 3. What is the implied value to book ratio?Name the econometric term used for estimating the correlation between today’s stock price and the price of previous days (lag prices).
- Duration is important in understanding a fixed income portfolio because A. it is used in the capital asset pricing model B. it measures the interest rate sensitivity of a bonds value C. It measures the correlation with a bank's stock price D. It causes contagionOne stock valuation model holds that the value of a share of stock is a function of its futuredividends, and that the dividends will increase at an annual rate which will remain unchangedover time. This stock valuation model is known as the * A.approximate yield model. B.holding period return model. C.constant growth dividend valuation model. D.dividend reinvestment model.The metric that is used to show the extent to which a given stock’s return move up and down with the stock market? a. Correlation b. Beta c. Standard deviation d. Expected return