Problem 18-9 (Algo)Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and themarket's average return was 15%. Performance is measured using an index model regression on excess returns.Index model regression estimatesR-squareResidual standard deviation, o(e)Standard deviation of excess returnsStock A1% +1.2(rm -rf)Stock B2% +0.8(rm -rf)0.64111.4%22.7%0.46920.2%27.1%Required:a. Calculate the following statistics for each stock: (Do not round intermediate calculations. Round your answers to 4 decimalplaces.)> Answer is complete but not entirely correct.Stock AStock Bi. Alpha1.0000%2.0000%ii. Information ratio0.08770.0980. Sharpe ratio0.46700.3100iv. Treynor measure10.6000 x4.2000 X

AlphaAlpha is a measure of the excess return of an investment or portfolio compared to its benchmark…

Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Required: Stock A Stock B 1% +1.2(rMr+) 2% +0.8(rm -rf) 0.641 0.469 11.4% 22.7% 20.2% 27.1% a. Calculate the following statistics for each stock: (Do not round intermediate calculations. Round your answers to 4 decimal places.) Answer is complete but not entirely correct. Stock A Stock B i. Alpha 1.0000 % 2.0000 % ii. Information ratio 0.0877 0.0980 iii. Sharpe ratio 0.4670 0.3100 iv. Treynor measure 10.6000x 4.2000

Index model regression estimates R-square Residual standard deviation, o(e) Standard deviation of excess returns Required: Stock A Stock B 1% +1.2(rMr+) 2% +0.8(rm -rf) 0.641 0.469 11.4% 22.7% 20.2% 27.1% a. Calculate the following statistics for each stock: (Do not round intermediate calculations. Round your answers to 4 decimal places.) Answer is complete but not entirely correct. Stock A Stock B i. Alpha 1.0000 % 2.0000 % ii. Information ratio 0.0877 0.0980 iii. Sharpe ratio 0.4670 0.3100 iv. Treynor measure 10.6000x 4.2000

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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Consider the two (excess return) index-model regression results for stocks A and The risk-free rate over the period was 6%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM – rf ) 2% + 0.8(rM – rf ) R-square 0.576 0.436 Residual standard deviation, σ(e) 10.3% 19.1% Standard deviation of excess returns 21.6% 24.9% Calculate the following statistics for each stock: Alpha Information ratio Sharpe ratio Treynor measure Which stock is the best choice under the following circumstances? This is the only risky asset to be held by the investor. This stock will be mixed with the rest of the investor’s portfolio, currently composed solely of holdings in the market-index fund. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.
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Consider the two (excess return) index model regression results for A and B: RA = 0.8% + 1RM R-square = 0.588 Residual standard deviation = 10.8% RB = –1.2% + 0.7RM R-square = 0.452 Residual standard deviation = 9% a. Which stock has greater market risk? multiple choice A. Stock A B. Stock B b. For which stock does market movement has a greater fraction of return variability? multiple choice A. Stock A B. Stock B c. If rf were constant at 4.5% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)