The following are beta's for a Microsoft during four time periods. Compare the four estimated betas. What do you conclude about how Microsoft's exposure to systematic risk has changed over that 20-year period? What do you think explains the change? 1987-1991: 1992-1996: 1997-2001: 2002-2006: 1.5882 0.8402 1.7971 1.0335 Which of the following statements is true? (Select the best choice below.) OA. Microsoft's systematic risk decreased in the early 1990s as Microsoft established itself as the dominant operating system company, but increased during the internet bubble in the late 1990s (when tech stocks were soaring). It has since decreased. OB. Microsoft's systematic risk increased in the early 1990s as Microsoft established itself as the dominant operating system company, but increased during the internet bubble in the late 1990s (when tech stocks were soaring). It has since decreased. OC. Microsoft's systematic risk decreased in the early 1990s as Microsoft established itself as the dominant operating system company, but increased during the internet bubble in the late 1990s (when tech stocks were soaring). It has since increased.

The following are beta's for a Microsoft during four time periods. Compare the four estimated betas. What do you conclude about how Microsoft's exposure to systematic risk has changed over that 20-year period? What do you think explains the change? 1987-1991: 1992-1996: 1997-2001: 2002-2006: 1.5882 0.8402 1.7971 1.0335 Which of the following statements is true? (Select the best choice below.) OA. Microsoft's systematic risk decreased in the early 1990s as Microsoft established itself as the dominant operating system company, but increased during the internet bubble in the late 1990s (when tech stocks were soaring). It has since decreased. OB. Microsoft's systematic risk increased in the early 1990s as Microsoft established itself as the dominant operating system company, but increased during the internet bubble in the late 1990s (when tech stocks were soaring). It has since decreased. OC. Microsoft's systematic risk decreased in the early 1990s as Microsoft established itself as the dominant operating system company, but increased during the internet bubble in the late 1990s (when tech stocks were soaring). It has since increased.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A portfolio manager is running a strategy whose tracking error last year was close to zero. Based on this information only, can you comment on how successful this strategy is? More generally, provide the definition of tracking error and describe briefly whether a high or low tracking error is preferred, and why.
Give typing answer with explanation and conclusion Exactly one year ago, an investor made an investment in investment in Braodcom (AVGO). At that time, the current risk-free rate was 0.69%, the beta for AVGO was 1.35, and the market risk premium was estimated at 6.2%. Over the year, the realized return for AVGO was 7.11%. What was the risk-adjusted return (alpha) for AVGO over the year?
All parts are under one questione adn therefore can be answered per your policy. 3. Measuring stand-alone risk using realized (historical) data Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Falcon Freight Inc. (FF): Five years of realized returns for FF are given in the following table. Remember: 1. While FF was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for FF for 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 8.75% 5.95% 10.50% 14.70% 4.55% A. Given the preceding data, the average realized return on FF’s stock is . B. The preceding data series…
4) XYZ has a beta of 1.5. The annualized market return yesterday was 14%, and the risk-free rate is currently 1%. You observe that XYZ had an annualized return yesterday of 20%. Assuming that markets are efficient, this suggests that A) bad news about Matthews was announced yesterday. B) good news about Matthews was announced yesterday. C) no news about Matthews was announced yesterday. D) interest rates rose yesterday. E) interest rates fell yesterday. Please justify your answer.
3. Measuring stand-alone risk using realized (historical)data Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Blue Llama Mining Inc. (BLM): Five years of realized returns for BLM are given in the following table. Remember: 1. While BLM was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for BLM for 2014 to 2018 are: 2014 2015 2016 2017 Stock return 6.25% 4.25% 7.50% 10.50% 2018 3.25% Given the preceding data, the average realized return on BLM's stock is The preceding data series represents historical returns is of BLM's historical returns. Based on this conclusion, the standard deviation of BLM's If investors expect the average realized return from 2014…
Carson Inc.'s manager believes that economic conditions during the next year will be strong, normal, or weak, and she thinks that the firm's returns will have the probability distribution shown below. What's the standard deviation of the estimated returns? (Hint: Use the formula for the standard deviation of a population, not a sample.) Do not round your intermediate calculations. Economic Conditions Strong Normal Weak O a. 17.49% O b. 12.36% O c. 22.49% O d. 10.10% O e. 18.36% Prob. 30% 40% 30% Return 27.0% 13.0% -17.0%
At the beginning of 2007 (the year the iPhone was introduced), Apple's beta was 1.3 and the risk-free rate was about 3.6%. Apple's price was $82.38. Apple's price at the end of 2007 was $192.92. If you estimate the market risk premium to have been 6.3%, did Apple's managers exceed their investors' required return as given by the CAPM? The expected return is? (Round percentage to 2 decimal places)
Measuring stand-alone risk using realized (historical) data Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Celestial Crane Cosmetics Inc. (CCC): Five years of realized returns for CCC are given in the following table. Remember: 1. While CCC was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns. 3. The historical returns for CCC for 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 25.00% 17.00% 30.00% 42.00% 13.00% Given the preceding data, the average realized return on CCC’s stock is . The preceding data series represents of CCC’s historical returns. Based on this conclusion, the standard deviation of CCC’s…
At the beginning of 2007 (the year the iPhone was introduced), Apple's beta was 1.2 and the risk-free rate was about 3.8%. Apple's price was $82.54. Apple's price at the end of 2007 was $190.92. If you estimate the market risk premium to have been 6.7%, did Apple's managers exceed their investors' required return as given by the CAPM? The expected return is%. (Round to two decimal places.)
K At the beginning of 2007 (the year the iPhone was introduced), Apple's beta was 1.51 and the risk-free rate was about 4.69%. Apple's price was $81.44. Apple's price at the end of 2007 was $190.41. If you estimate the market risk premium to have been 5.59%, did Apple's managers exceed their investors' required return as given by the CAPM? The expected return is %. (Round to two decimal places.)
Which of the following statements is CORRECT? Suppose the returns on two stocks are negatively correlated. One has a beta of 1.2 as determined in a regression analysis using data for the last 5 years, while the other has a beta of −0.6. The returns on the stock with the negative beta must have been negatively correlated with returns on most other stocks during that 5-year period. Suppose you are managing a stock portfolio, and you have information that leads you to believe the stock market is likely to be very strong in the immediate future. That is, you are convinced that the market is about to rise sharply. You should sell your high-beta stocks and buy low-beta stocks in order to take advantage of the expected market move. You think that investor sentiment is about to change, and investors are about to become more risk averse. This suggests that you should re-balance your portfolio to include more high-beta stocks. If the market risk premium remains constant, but the risk-free rate…
Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 2%, to be14%. Ignoring the shift in part c, draw the new SML on the same set of axes that you used before, and calculate and show the new required return for asset A. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets?

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