QUESTION II: THE S&P 500 INCLUDSION ANOMALY. Mean cumulative abnormal return 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0% -0.50% High arbitrage risk ....... Low arbitrage risk -2-1 0 123456789 10 11 12 13 14 15 16 17 18 19 20 Trading day relative to addition announcement Fig. 2.4 Mean Cumulative Abnormal Returns For Stocks Added To the S&P 500, By Level Of Imperfect Arbitrage Risk. This figure, which we discussed in the lecture, plots the mean cumulative abnormal returns of two groups of stocks added to the S&P 500. The first group includes stocks with high arbitrage risk, while the other group includes stocks with low arbitrage risk. The horizontal axis is the trading day relative to the addition announcements. 1. (2 points) What is the main finding of this Figure? 2. (3 points) What is the explanation for the finding?

Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset A B Asset B Asset A Return Both Assets A and C Asset C (10% 12% 14% Beta 0.74 1.00 1.25 Standard Deviation 20% 40% 30%

Calculate the expected value of the scenario. X₁ P(x₁) -$0.25 0.1 $0 0.5 $0.25 0.1 $0.50 0.3

What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25

3.

Qu. 5 please help and show all steps with formulas used

vvk.1

Sh19 Please help me. Solution

Consider the following two securities X and Y. Y Security Expected Return Standard Deviation Beta 12.5% 10.0% Risk-free asset 5.0% OA. 1.33 ○ B. 0.88 OC. 1.17 OD. 1.67 20.0% 1.5 30.0% 1.0

Which asset in the following table has the most market risk (also known as systematic or non-diversifiable risk)? (Ch. 8) Asset Return Beta Standard Deviation Asset A 9% 0.95 20% Asset B 13% 1.10 35% Asset C 10% 1.00 40% Group of answer choices Asset A Asset C Asset B and Asset C Asset B