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- Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?What 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.If market is efficient, in managing an equity portfolio, you will adopt a. Indexing strategy b. Stock rotation strategy c. Security selection strategy d. Market timing strategy
- Investors can use certain metrics to assess a stock or stock portfolio's risk. One of them is the Sortino ratio. What is this ratio and what is unique in its measurement?Select all that are true with respect to the historical risk-return tradeoff for portfolios, and for individual stocks. Group of answer choices For portfolios, the relation between risk and return is positive and quite strong For individual stocks, the relation between risk and return is positive and stronger than for portfolios The relation between risk and return is stronger for portfolios than it is for individual stocks You get a better risk-return tradeoff if you put assets together in a portfolioStock valuation is necessary in making a good investment decision. This helps in the identification of undervalued and overvalued stocks. Fundamental analysis is pertinent in gathering the relevant information necessary to select the best stock. Required a) Using relevant examples, discuss the THREE stages of fundamental analysis and how they are interlinked. b) In order to characterize and compare national as well as international stock markets, a number of indicators are being used. Using TWO stock markets of your choice, discuss the above statement.
- Please assist with the below: Covariance with MPCorrelation with Market IndexBetaCAPM Req. ReturnValuation(Overvalued/Undervalued/Fairly Valued)Nature of stock(Aggressive/Defensive)Stock market analyst. Explain how the relationship between risk and return is maintained using different modelsFundamental analysis is a method of______________________________to determine intrinsic value of the stock.a. Measuring the intrinsic value of a security using the market indexb. Using qualitative and quantitative factorsc. Using statistical analysis such as standard deviation, coefficients and probabilitiesd. Using historical price movementse. B and C only
- a. What determines stock market valuations? b. Is a stock's price primarily determined by the discounted sum of future cash flows, monetary policy, or fear and greed? c. Is market timing possible using sentiment indicators such as put/call ratios and Investor's Intelligence surveys? Please ensure to add references and citations.Select the best answer with respect to a stock's "alpha"? (In a CAPM world) Group of answer choices The expected return on an asset relative to the expected return on the market The expected return on an asset relative to the riskiness of the asset The expected return on an asset relative to the risk free rate The expected return on an asset relative to what CAPM predicts for the asset's expected returnan investment market, understanding the concept of undervalued and overvalued stocks is very important. Hence, a prudent investor must have good knowledge about Beta, Market Rate of Return and Risk Free Rate of Return. b) Give a graphical example to present the positioning of: Systematic risk Risk free rate of return Market rate of return, and Risk premium.
