↑ Suppose Avon and Nova stocks have volatilities of 51% and 20%, respectively, and they are perfectly negatively comelated: What portfolio of these two stocks has zero risk? The portfolio of these two stocks that has zero risk is of Avon and of Nova (Round to two decimal places)

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.6% + 1.2RM + eA RB = -1.6% + 1.5RM + eB OM = 16%; R-squarea = 0.25; R-square; = 0.15 What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.) Covariance Stock A Stock B

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.23 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Stock beta

Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an expected return of 15.59 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.

Suppose Avon and Nova stocks have volatilities of 52% and 22% , respectively, and they are perfectly negatively correlated. What portfolio of these two stocks has zero risk? The portfolio of these two stocks that has zero risk is % of Avon and % of Nova. (Round to two decimal places.)

Consider the following information: State   Probability   Stock A   Stock B   Stock C  Boom     0.65         0.26        -0.1        -0.08  Bust       0.35         0.15        0.16        0.18 What is the expected return on an equally weighted portfolio of these three stocks? (Hint: Equally means that each stock has the same weight. Given that there are only 3 stocks, each has a weight of 1/3) Enter the answer with 4 decimals (e.g. 0.1234).

U Assume CAPM holds. We know expected return and beta of two stocks: Stock A: E[ra] = 10% and beta_a = 1.5 Stock B: E[rb] = 5% and beta_b = 0.5 What would be the expected return of a stock that has a beta of 0.9? O 6.5% Ⓒ7% O 7.5% O 6% Question 5 Which of the following statements is false? o The CAPM follows from equilibrium conditions in a frictionless mean-variance economy with rational investors According to CAPM, everyone should hold a mix of the market portfolio and the risk-free asset. According to CAPM, everyone can generate positive return by buying positive alpha stocks and by selling negative alpha stocks. According to CAPM, the expected return on a stock is a linear function of its beta.

Stocks A and B have the following probability distributions of expected future returns: Probability A B 0.1 (5 %) (38 %) 0.2    5       0 0.5   14     21 0.1   23     27 0.1   28     38 Calculate the expected rate of return, , for Stock B ( = 12.60%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 20.20%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Assume the risk-free rate is 2.5%. What are the Sharpe ratios for Stocks A and B? Do not round intermediate calculations. Round your answers to four decimal places. Stock A: Stock B:

Required Rate of Return Stock R has a beta of 1.3, Stock S has a beta of 0.75, the expected rate of return on an average stock is 9%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 38+0.7RM + eA + eB RB-28+1.2RM OM 20%; R-squareд 0.20; R-squareg = 0.12 What is the standard deviation of each stock? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Stock A Stock B = Standard Deviation % %