Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Historical Annual Volatilities and Correlations for Selected Stocks (based on monthly returns, 1996-2017) Southwest Ford General Microsoft НР Alaska Air Airlines Motor Kellogg Mills Volatility (Standard Deviation) 32% 36% 36% 31% 47% 19% 17% Correlation with Microsoft 1.00 0.40 0.18 0.22 0.27 0.04 0.10 HP Inc. 0.40 1.00 0.28 0.34 0.27 0.10 0.06 Alaska Air 0.18 0.28 1.00 0.40 0.15 0.15 0.20 Southwest Airlines 0.22 0.34 0.40 1.00 0.30 0.15 0.21 Print Done

Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Historical Annual Volatilities and Correlations for Selected Stocks (based on monthly returns, 1996-2017) Southwest Ford General Microsoft НР Alaska Air Airlines Motor Kellogg Mills Volatility (Standard Deviation) 32% 36% 36% 31% 47% 19% 17% Correlation with Microsoft 1.00 0.40 0.18 0.22 0.27 0.04 0.10 HP Inc. 0.40 1.00 0.28 0.34 0.27 0.10 0.06 Alaska Air 0.18 0.28 1.00 0.40 0.15 0.15 0.20 Southwest Airlines 0.22 0.34 0.40 1.00 0.30 0.15 0.21 Print Done

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 1P

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Similar questions

An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
Using the data in the chart, calculate the first-period rates of return on the following indexes of the three stocks: A market-value-weighted index. An equally weighted index. stocks P0 Q0 P1 Q1 P2 Q2 A 90 100 95 100 95 100 B 50 200 45 200 45 200 C 100 200 110 200 55 400 (Pt represents price at time t, and Qt represents shares outstanding at time t.)
The data below describes a three-stock financial market that satisfies the single index model. Stock Capitalization Beta Mean Excess Return Standard Deviation A £3,000 1.0 10% 40% B £1,940 0.2 2% 30% C £1,360 1.7 17% 50% The standard deviation of the market index portfolio is 25%. What is the mean excess return of the index portfolio? What is the covariance between stock A and stock B? What is the covariance between stock B and the index? Break down the variance of stock B into its systematic and firm specific components.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 5.0% + 1.30RM + eA RB= -2.0% + 1.6RM + eB sigmaM= 20% ; R-squareA= 0.20 ; R-squareB= 0.12 What is the standard deviation of each stock (write as percentage, rounded to 2 decimal places)?
For the next question, consider the two stocks, A and B, in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. P0 Q0 P1 Q1 A 50 100 45 100 B 30 200 34 200 Calculate the rate of return on a price-weighted index of the two stocks for between t = 0 and t = 1. Assume the divisor value is 2. Enter your answer as a decimal, rounded to four decimal places (e.g, 0.0123).
Consider the three stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. Stock C splits two for one in the last period. P0 Q0 P1 Q1 P2 Q2 A 110 500 115 500 115 500 B 90 600 85 600 85 600 C 80 600 100 600 50 1,200 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Calculate the new divisor for the price-weighted index in year 2. (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. Calculate the rate of return for the second period (t = 1 to t = 2).
Suppose that the average stock has a volatility of 57%, and that the correlation between pairs of stocks is 18%. Estimate the volatility of an equally weighted portfolio with: a. 1 stock b. 30 stocks c. 1,000 stocks
The figures below show plots of monthly rates of return on three stocks versus those of the market index. The beta and standard deviation of each stock is given beside the plot. Which stock is safest for a diversified investor? Which stock is safest for an undiversified investor who puts all her money in one of these stocks? Consider a portfolio with equal investments in each stock. What would be this portfolio’s beta? Consider a well-diversified portfolio composed of stocks with the same beta and standard deviation as Ford. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%. Use the capital asset pricing model to estimate the expected return on each stock. The risk-free rate is 4%, and the market risk premium is 8%.
Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Stock C splits two-for-one in the last period. (LO 2-2) A B C Po 90 50 100 Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200 P₂ 95 45 55 a. Calculate the rate of return on a price-weighted index of the three stocks for the first period (t = 0 to t = 1). b. What must happen to the divisor for the price-weighted index in year 2? c. Calculate the rate of return of the price-weighted index for the second period (t = 1 to t=2). Q₂ 100 200 400
Suppose that you would like to create composite indexes from three stocks: stk1, stk2, stk3. Their stock prices (Pt) and total shares outstanding (Qt) from day 0 to day 1 are shown as follows: stk3 splits two-for-one in day 1. P0 Q0 P1 Q1 stk1 40 100 50 100 stk2 50 200 50 200 stk3 60 150 50 300 Which answer is the closest value to the rate of return on a value-weighted index of the three stocks? A. 20% B. 25% C. 30% D. 35%
Suppose that you would like to create composite indexes from three stocks: stk1, stk2, stk3. Their stock prices (Pt) and total shares outstanding (Qt) from day 0 to day 1 are shown as follows: stk3 splits two-for-one in day 1. P0 Q0 P1 Q1 stk1 40 100 50 100 stk2 50 200 50 200 stk3 60 150 50 300 Which answer is the closest value to the rate of return on an equal-weighted index of the three stocks? A. 20% B. 25% C. 30% D. 35%
Suppose you are given the following information about 2 stocks, what is the return standard deviation of a portfolio weighted 55% in stock A and 45% in stock B? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 Enter rate in decimal form, rounded to 4th digit, as in "0.1234"