1.2. Refer to the following observations for stock A and the market portfolio in the table: Month Rate of return Stock A Market portfolio 1 0,30 0,12 2 0.24 0,08 -0,04 -0,10 4 0,10 -0,02 5 0,06 0,08 0,10 0,07 a) Calculate the main statistic measures to explain the relationship between stock A and the market portfolio: i) The sample covariance between rate of return for the stock A and the market. [4] ii) The sample Beta factor of stock A. [3] iii) The sample correlation coefficient between the rates of return of the stock A and [3] the market. iv) The sample coefficient of determination associated with the stock A and the mar- ket. [4] b) Draw in the characteristic line of the stock A and give the interpretation - what does it show for the investor? [4] c) Calculate the sample residual variance associated with stock's A characteristic line and explain how the investor would interpret the number of this statistic. [4] d) Do you recommend this stock for the investor with the lower tolerance of risk? [3]
1.2. Refer to the following observations for stock A and the market portfolio in the table: Month Rate of return Stock A Market portfolio 1 0,30 0,12 2 0.24 0,08 -0,04 -0,10 4 0,10 -0,02 5 0,06 0,08 0,10 0,07 a) Calculate the main statistic measures to explain the relationship between stock A and the market portfolio: i) The sample covariance between rate of return for the stock A and the market. [4] ii) The sample Beta factor of stock A. [3] iii) The sample correlation coefficient between the rates of return of the stock A and [3] the market. iv) The sample coefficient of determination associated with the stock A and the mar- ket. [4] b) Draw in the characteristic line of the stock A and give the interpretation - what does it show for the investor? [4] c) Calculate the sample residual variance associated with stock's A characteristic line and explain how the investor would interpret the number of this statistic. [4] d) Do you recommend this stock for the investor with the lower tolerance of risk? [3]
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 13P
Related questions
Question
Refer to the following observations for stock A and the market portfolio in the table:
a) Calculate the main statistic measures to explain the relationship between stock A
and the market portfolio:
i) The sample covariance between rate of return for the stock A and the market.
ii) The sample Beta factor of stock A.
iii) The sample correlation coefficient between the
the market.
iv) The sample coefficient of determination associated with the stock A and the market.
b) Draw in the characteristic line of the stock A and give the interpretation - what
does it show for the investor?
c) Calculate the sample residual variance associated with stock’s A characteristic line
and explain how the investor would interpret the number of this statistic.
d) Do you recommend this stock for the investor with the lower tolerance of risk?
![1.2. Refer to the following observations for stock A and the market portfolio in the table:
Month
Rate of return
Stock A
Market portfolio
1
0,30
0,12
0.24
0,08
-0,10
3
-0,04
4
0,10
-0.02
5
0,06
0,08
6.
0,10
0,07
a) Calculate the main statistic measures to explain the relationship between stock A
and the market portfolio:
i) The sample covariance between rate of return for the stock A and the market. [4]
ii) The sample Beta factor of stock A.
[3]
iii) The sample correlation coefficient between the rates of return of the stock A and
the market.
[3]
iv) The sample coefficient of determination associated with the stock A and the mar-
[4]
ket.
b) Draw in the characteristic line of the stock A and give the interpretation - what
[4]
does it show for the investor?
c) Calculate the sample residual variance associated with stock's A characteristic line
and explain how the investor would interpret the number of this statistic.
[4]
d) Do you recommend this stock for the investor with the lower tolerance of risk?
[3]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7676a838-e63a-4a4a-82cc-83c8fc9d1287%2Ff185f2a8-5617-4531-b2a6-0b83a765592e%2Fdps09s5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1.2. Refer to the following observations for stock A and the market portfolio in the table:
Month
Rate of return
Stock A
Market portfolio
1
0,30
0,12
0.24
0,08
-0,10
3
-0,04
4
0,10
-0.02
5
0,06
0,08
6.
0,10
0,07
a) Calculate the main statistic measures to explain the relationship between stock A
and the market portfolio:
i) The sample covariance between rate of return for the stock A and the market. [4]
ii) The sample Beta factor of stock A.
[3]
iii) The sample correlation coefficient between the rates of return of the stock A and
the market.
[3]
iv) The sample coefficient of determination associated with the stock A and the mar-
[4]
ket.
b) Draw in the characteristic line of the stock A and give the interpretation - what
[4]
does it show for the investor?
c) Calculate the sample residual variance associated with stock's A characteristic line
and explain how the investor would interpret the number of this statistic.
[4]
d) Do you recommend this stock for the investor with the lower tolerance of risk?
[3]
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
