If a stock's Beta is negative, that suggests that... (choose the single best response) Group of answer choices None of these is true. The stock's returns have been consistently negative recently. No investors would want to buy the stock. Its returns are negatively correlated with the market. The stock's CAPM expected return is negative.

If a stock's Beta is negative, that suggests that... (choose the single best response) Group of answer choices None of these is true. The stock's returns have been consistently negative recently. No investors would want to buy the stock. Its returns are negatively correlated with the market. The stock's CAPM expected return is negative.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 3MC: You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand...

See similar textbooks

Similar questions

You have been hired at the investment firm of Bowers Noon. One of its clients doesnt understand the value of diversification or why stocks with the biggest standard deviations dont always have the highest expected returns. Your assignment is to address the clients concerns by showing the client how to answer the following questions: e. Add a set of indifference curves to the graph created for part b. What do these curves represent? What is the optimal portfolio for this investor? Add a second set of indifference curves that leads to the selection of a different optimal portfolio. Why do the two investors choose different portfolios?
You have been hired at the investment firm of Bowers Noon. One of its clients doesnt understand the value of diversification or why stocks with the biggest standard deviations dont always have the highest expected returns. Your assignment is to address the clients concerns by showing the client how to answer the following questions: Add a set of indifference curves to the graph created for part b. What do these curves represent? What is the optimal portfolio for this investor? Add a second set of indifference curves that leads to the selection of a different optimal portfolio. Why do the two investors choose different portfolios?
You have been hired at the investment firm of Bowers Noon. One of its clients doesnt understand the value of diversification or why stocks with the biggest standard deviations dont always have the highest expected returns. Your assignment is to address the clients concerns by showing the client how to answer the following questions: d. Construct a plausible graph that shows risk (as measured by portfolio standard deviation) on the x-axis and expected rate of return on the y-axis. Now add an illustrative feasible (or attainable) set of portfolios and show what portion of the feasible set is efficient. What makes a particular portfolio efficient? Dont worry about specific values when constructing the graphmerely illustrate how things look with reasonable data.
You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand the value of diversification or why stocks with the biggest standard deviations don’t always have the highest expected returns. Your assignment is to address the client’s concerns by showing the client how to answer the following questions: Plot the attainable portfolios for a correlation of 0.35. Now plot the attainable portfolios for correlations of +1.0 and −1.0.
You have been hired at the investment firm of Bowers & Noon. One of its clients doesn’t understand the value of diversification or why stocks with the biggest standard deviations don’t always have the highest expected returns. Your assignment is to address the client’s concerns by showing the client how to answer the following questions: Suppose a risk-free asset has an expected return of 5%. By definition, its standard deviation is zero, and its correlation with any other asset is also zero. Using only Asset A and the risk-free asset, plot the attainable portfolios.
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.
Which 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.
Which of the following(s) would be ways to reject the CAPM? a showing that there exist a stock with zero beta with the market earns an expected return higher than the risk free rate b showing that there exist a stock that earns higher expected return than the market c Showing that a portfolio consistently generates a negative alpha d Showing that a certain factor predicts expected return even after controlling for market beta
An analyst who believes in the Treynor Black Model has identified one active stock, stock A, which he/she wants to combine with the passive Market Index M to form their firm's optimal risky portfolio. A regression of the excess returns of stock A on the excess returns of the market index M, have discovered that stock A's alpha is 4%, its beta is 2.0, and the residual standard deviation of the error term for stock A is 18%. The standard deviation for the market index M is 14%, the expected return on M is 11%, the risk-free rate of return is 3%, and the expected return on stock A is 22%. What is the Sharpe Ratio for the optimal risky portfolio formed by the optimal combination of the active stock A with the passive market index M? Note that the Sharpe Ratio is usually expressed as a decimal.
Which of the following statements is INCORRECT? A stock's beta is calculated as the covariance between the stock's price and the market portfolio return, divided by the variance of the market portfolio return. If we assume that the market portfolio (or the S&P 500) is efficient, then changes in the value of the market portfolio represent systematic shocks to the economy. The risk premium investors can earn by holding the market portfolio is the difference between the market portfolio's expected return and the risk-free interest rate. A stock’s standard deviation is a measure of the total risk.
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.
Which of the following arguments has been put forward as a criticism of using the PEG ratio as the basis of an investment strategy? Select one: a. The PEG ratio buys growth stocks without any consideration of their price. b. Stocks with a low PEG ratio are all large cap stocks. c. Stocks with a low PEG ratio have been shown to generate lower stock returns. d. Stocks with a low PEG ratio also have a positively skewed distribution of returns. e. Stocks with a low PEG ratio are shown to be riskier.