Like many stock analysts, Lydia believes that program trading greatly decreases the volatility of stock market prices. True or False True False
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- An antitrust case has lead to you having to calculate a fair return (using the CAPM) for RadioEthiopea common stock. The market has a volatility of 18.00%, while the shares have a volatility of 33.00%. The correlation between the two sets of returns is -0.10. The risk free rate is 1.90%, while the expected return on the market is 4.30%. What is the fair return for RadioEthiopea common stock? 1.11% 1.77% 1.46% 1.66%An antitrust case has lead to you having to calculate a fair return (using the CAPM) for RadioEthiopea common stock. The risk free rate is 3.20%, while the expected return on the market is 4.70%. The shares have a volatility of 21.00%, while the market has a volatility of 13.00%. The correlation between the two sets of returns is 0.44. What is the fair return for RadioEthiopea common stock?Which of the following statements is correct? Multiple Choice Penny stocks are the stocks of small companies that are priced below $1 per share. Restricted stocks are shares of stock issued to executives that have limitations on voting rights. The capital market line graphs the relationship between return and risk (beta). All of these choices are correct.
- You buy a stock from the capital market. If the capital market is semi-strong efficient, which of the following statements is NOT correct? a. You cannot earn any abnormal returns above the required return by trading on public information. b. Past stock prices can be used to predict future stock prices. c. The technical analysis of publicly available information will not lead to any abnormal returns. d. The stock is fairly priced. e. Stock prices reflect all publicly available information.Consider the following information about Stocks X and Y: State of Economy Probability of State Stock X Returns Stock Y Returns Recession 0.15 0.11 -0.25 Steady 0.55 0.18 0.11 Boom 0.30 0.08 0.31 The market risk premium is 7.5 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is “riskier”? Explain.You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4…
- Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 11% volatility and the risk-free rate is 4%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks: Expected Return Volatility Beta Green Leaf 13% 22% 1.64 NatSam 10% 32% 1.61 HanBel 11% 29% 0.64 Rebecca Automobile 6% 30% 1.28 At current market prices, which stocks represent buying opportunities? On which stocks should you put a sell order in? Complete the table with the alphas below: (Round to one decimal place.) Expected Return Volatility…Which of the following regarding the S&P 500 inclusion anomaly is FALSE? Group of answer choices a) The share price increases without any fundamental good news about the company. b) Stocks that experience larger demand shocks as a consequence of inclusion also experience larger returns on the announcement. c) Stock price increases on the news of the inclusion in the Index have grown sharply over time as index funds grew. d) Stocks whose returns are harder to replicate experience smaller returns on the announcement.According to Kumar (2009, “Who gambles in the stock market?”, Journal of Finance), what are the three characteristics of lottery-type stocks? a. High idiosyncratic volatility, high idiosyncratic skewness and low price b. High systematic volatility, high idiosyncratic skewness and low price c. High idiosyncratic volatility, high idiosyncratic skewness and high price d. High idiosyncratic volatility, high idiosyncratic kurtosis and low price e. None of the above
- Further explain why the price of many individual stocks still goes down, even when the overall stock market goes up, and give examples.Choose only one answer and explain the rationale in one or two sentences. 1. Which of the following contradicts the proposition that the stock market is weakly efficient? a. An analyst is able to identify mispriced stocks by looking at stock charts. b. Mutual funds do not outperform the market on average. c. Some investors can earn abnormal profits. d. The autocorrelations of stock returns are not significantly different from zero. 2. Which of the following would provide the strongest evidence against the semi-strong form of the efficient market theory? a. Fundamental analysis does not help generate abnormal returns. b. Technical analysis is worthless in identifying mispriced stocks. c. Stock prices response to firms’ earnings announcements gradually. d. Mutual fund managers do not beat the market on average. 3. Which of the following statements is true about the efficient market hypothesis? a. It implies a rational market. b. It implies that everyone makes zero profit from…The following three stocks are available in the market: E(R) β Stock A 10.9 % 1.18 Stock B 12.8 .98 Stock C 15.3 1.38 Market 14.3 1.00 Assume the market model is valid. The return on the market is 15.1 percent and there are no unsystematic surprises in the returns. What is the return on each stock?
