Which of the following is false when the tails of a future stock price distribution are compared with those of a lognormal distribution with the same mean and standard deviation? Group of answer choices The right tail implies a reduced likelihood of extreme market movements compared with the log normal. The right tail is thinner
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- The slope of a regression line when the return on an individual stock's returns are regressed on the return on the market portfolio, would be: OAR BR-₁ B OC none of the answers listed here. ODO imWhen working with the CAPM, which of the following factors can be determined with the most precision? a. The beta coefficient of "the market," which is the same as the beta of an average stock. b. The beta coefficient, bi, of a relatively safe stock. c. The market risk premium (RPM). d. The most appropriate risk-free rate, rRF. e. The expected rate of return on the market, rM.(c) Consider information given in the table below and answers the question asked thereafter: i. Calculate expected return on each stock? On the basis of this measure, which stock you will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?iv. Calculate covariance and coefficient of correlation between the returns of the stocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio. (d) Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate…
- Which of the following is true for testing stock price predictability? Select one: a. All of the options O b. When considering an RW without drift and the Cowles-Jones test, the probability of observing an increase or a decrease in price is no longer 0.5 O c. None of the options O d. The test statistic of the Volatility Ratio test is enough for us to be able to draw significant conclusions O e. The Box-Pierce g-test is based on the fact that for RW3 processes there should be no autocorrelation between the returnsWhat is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.Which of the following is TRUE? You should choose a stock with the greater Jensen’s alpha Lower Treynor ratio indicates better risk adjusted performance Lower Sharpe ratio indicates greater level of risk for the same level of risk-adjusted return Higher Sharpe ratio indicates lower return for the same level of risk
- Based on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.32. An analyst calculated the excess kurtosis of a stock's returns as -0.75. From this information, we conclude that the distribution of returns is: A. normally distributed. B. thin-tailed compared to the normal distribution. C. fat-tailed compared to the normal distribution.Why will the standard deviation not be a good measure of risk when returns are negatively skewed? What are the risk implications for an investor for a returns series that exhibits fat tails? A price weighted index places more weight on stocks with a higher price, whilst a value weighted index places more weight on stocks with a higher market capitalization. Discuss.
- Consider the two (excess return) index model regression results for A and B. RA= 0.9% + 1.1RM , R-square = 0.590, and Residual Standard Deviation = 11% RB= -1.4% + 0.6RM, R-square = 0.456, and Residual Standard Deviation = 9.2% Which stock has more firm-specific risk, market risk, and greater fraction of return variability for market movement? Also, if rf were constant at 4.4% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A (write as percentage, rounded to 2 decimal places)?The beta of a firm's stock can be estimated as the slope of the best fitting straight line through a plot of the stock's excess returns (on the x axis) versus the excess market returns (on the y axis). True FalseWhich of the following statements is CORRECT? a. The slope of the Security Market Line is beta. b. Any stock with a negative beta must in theory have a negative required rate of return, provided rRF is positive. c. If a stock's beta doubles, its required rate of return must also double. d. If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative. e. If a stock has a beta of to 1.0, its required rate of return will be unaffected by changes in the market risk premium.