Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 11, Problem 7CP
Summary Introduction
To select: The correct statement about the term good relative strength is to be determined.
Introduction :
The relative strength can be defined as the type momentum investing. This is used to select the investments which outperform their market.
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Each stock's rate of return in a given year consists of a dividend yield (which might be zero) plus a capital gains yield (which could be positive, negative, or zero). Such returns are calculated for all the stocks in the S&P 500. A weighted average of those returns, using each stock's total market value, is then calculated, and that average return is often used as an indicator of the "return on the market."
When technical analysts say a stock has good “relative strength,” they mean:a. The ratio of the price of the stock to a market or industry index has trended upward.b. The recent trading volume in the stock has exceeded the normal trading volume.c. The total return on the stock has exceeded the total return on T-bills.d. The stock has performed well recently compared to its past performance.
An analyst has estimated how a particular stock’s return will vary depending on what will happen to the economy. What is the coefficient of variation on the company's stock?
OF THEECONOMY
PROBABILITY OFSTATE OCCURRING
STOCK'S EXPECTEDRATE IF THISSTATE OCCURS
Recession
Below Average
Average
Above Average
Boom
.10
.20
.40
.20
.10
(.60)
(.10)
.15
.40
.90
Chapter 11 Solutions
Investments
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- Q.Which of the following statements are true/false: I: The implied volatility of a stock can be calculated by deternining the standard deviation of stock returns over the last one year. II: The implied volatility of a stock can be calculated by deternining the standard deviation of stock returns over the last six months. A. I is true, II is false B. I is false, II is true C. I and II are both false D. I and II are both truearrow_forwardSuppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis? Explain.a. The average rate of return is significantly greater than zero.b. The correlation between the return during a given week and the return during the following week is zero.c. One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.d. One could have made higher-than-average capital gains by holding stocks with low dividend yields.arrow_forwardSuppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis? A. The average rate of return is significantly greater than zero. B. The correlation between the return during a given week and the return during the following week is zero. C. One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. D. One could have made higher-than-average capital gains by holding stocks with low dividend yields.arrow_forward
- 1) Consider two stocks A and B and their returns are assumed to be normally distributed. Over the past 10 years, both stocks have the same (arithmetic) average annual returns, but Stock A has a significantly higher volatility (measured by standard deviation of annual returns) than Stock B. Which of the following is TRUE? A) Stock A has a higher geometric average return than Stock B. B) Stock A has a lower geometric average return than Stock B. C) Stock A and B have the same geometric average return. D) There is no sufficient information to determine which stock has a higher or lower geometric average return. 2) PL Lumber stock is expected to return 22 percent in a booming economy, 15 percent in a normal economy, and lose 2 percent in a recession. The probabilities of an economic boom, normal state, or recession are 15 percent, 80 percent, and 5 percent, respectively. What is the expected rate of return on this stock? 12.80 percent 14.60 percent 15.20 percent 15.60 percent 3) You would…arrow_forwardWhich of the following statements about the behaviour of the portfolio of shares during the 2010-2020 period is patently false? A. The Paasche indices exceed the Laspeyres indices, indicating that the weighted price and weighted quantity changes are positively correlated. B. In real terms, the increase in the value of the share portfolio was most probably between 61.53% and 80.46%. C. In the main, the individual investor bought more shares that appreciated in value and sold some shares that lost value during the 2010 - 2020 period. D. The Laspeyres indices exceed the Paasche indices, indicating that the weighted price and weighted quantity changes are positively correlated. SECTION D Based on the information provided below, answer questions 17 to 21. A business researcher with a keen interest in micro, small and medium enterprises (MSMEs) is investigating the relationship between the average annual sales and average annual earnings of 20 MSMEs in the Western Cape province described as…arrow_forwardSome investors use the Sharpe ratio as a way of comparing the benefits of owning shares of stock in a company to the risks. The Sharpe ratio of a stock is defined as the ratio of the difference between the mean return on the stock and the mean return on government bonds (called the risk-free rate rf ) to the SD of the returns on the stock. The mean return on government bonds is rf = 0.03% per day. The table below describes the daily return of three stocks. Date APPLE. TESLA GM 01/10/20 0.85% 4.46% 2.67% 02/10/20 -3.23% - 7.38% 0.26% 05/10/20 3.08% 2.55% 1.64% 06/10/20 -2.87% -2.75% -1.81% 07/10/20 1.70% 2.73% 4.01% 08/10/20 -0.10% 0.15% 1.87% 09/10/20 1.74% 1.90% -0.16% 12/10/20 6.35% 1.91% 0.16% 13/10/20 -2.65% 0.98% -1.06% 14/10/20 0.07% 3.28% -0.63% 15/10/20 -0.40% -2.69% 2.90% 16/10/20 -1.40% -2.05%…arrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY