Q9. “Market breadth indicators analyze the number of stocks advancing relative to those that are declining in a given index or on a stock exchange. Positive market breadth occurs when more stocks are advancing than are declining. This suggests that the bulls are in control of the market's momentum and helps confirm a price rise in the index. Conversely, a disproportional number of declining securities is used to confirm bearish momentum and a downside move in the stock index". Explain it by completing the below mentioned table and how the calculation of this table supports to understand the market trends? Day Decline Daily Difference Breadth(difference cumulative) Advance Monday Tuesday Wednesday 600 300 450 500 350 600 Thursday Friday 580 380 700 300

Q9. “Market breadth indicators analyze the number of stocks advancing relative to those that are declining in a given index or on a stock exchange. Positive market breadth occurs when more stocks are advancing than are declining. This suggests that the bulls are in control of the market's momentum and helps confirm a price rise in the index. Conversely, a disproportional number of declining securities is used to confirm bearish momentum and a downside move in the stock index". Explain it by completing the below mentioned table and how the calculation of this table supports to understand the market trends? Day Decline Daily Difference Breadth(difference cumulative) Advance Monday Tuesday Wednesday 600 300 450 500 350 600 Thursday Friday 580 380 700 300

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 11QE: Market equity beta measures the covariability of a firms returns with all shares traded on the...

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Q1. 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. Q2. Price weighted indices have been criticized because they introduce a downward bias by reducing the weight of growing companies whose stock split. What does this mean and why does the underweighting occur? Q3. What should be the risk premium and return on a stock with a Beta of zero under the Capital Asset Pricing Model (CAPM)? What about the risk premium and return on a stock with a Beta of 1? Q4. In a world of certainty, investors will always invest in the asset with the highest return. In the real world, investors hold a diversified portfolio of securities. Why is this the case?
When technical analysts say a stock has good “relative strength,” they mean:a. The ratio of the price of the stock to a market or industry index has trended upward.b. The recent trading volume in the stock has exceeded the normal trading volume.c. The total return on the stock has exceeded the total return on T-bills.d. The stock has performed well recently compared to its past performance.
Which of the following empirical observations appear to contradict weak form market efficiency? a. The average rate of return of stocks is significantly greater than zero b. The month-to-month time series autocorrelation of stock returns is not significantly different from zero c. A strategy of buying recent high-return stocks (winners) and shorting recent low-return stocks (losers) provides significant positive alpha d. Low dividend stocks provide higher-than-average capital gains e. None of the above
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.
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.
An analyst has estimated how a particular stock’s return will vary depending on what will happen to the economy. What is the coefficient of variation on the company's stock? OF THEECONOMY PROBABILITY OFSTATE OCCURRING STOCK'S EXPECTEDRATE IF THISSTATE OCCURS Recession Below Average Average Above Average Boom .10 .20 .40 .20 .10 (.60) (.10) .15 .40 .90
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?
“The track record of the stock market also shows that a good basket of stocks climb more often than decline - reducing risk over the long-term.” Explain this statement.
Subject: Financia; strategy & policy Question No 2 (part i) Answer the following. i) Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected return Standard deviation beta X 9.00% 15% 0.8 Y 10.75 15 1.2 Z 12.50 15 1.6 Fund Q has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (that is, required returns equal expected returns.) a) What is the market risk premium (rM – rRF)? b) What is the beta of Fund Q? c) What is the expected return of Fund Q? d) Would you expect the standard deviation of Fund Q to be less than 15%, equal to 15%, or greater than 15%? Explain.
Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk): Stock % % % % BFT % B F T UE Rit = return for stock i during period t Rmt = return for the aggregate market during period t Use a minus sign to enter negative values, if any. Round your answers to one decimal place. ARBE: ARF: ARTI: ARC: AREL: с Rit 11.5% 9.2 12.5 12.5 15.9 Rmt 4.7% 6.2 6.6 15.2 11.1
Consider the following information on Stocks I and II: Probability of State of Economy State of Economy Rate of Return if State Occurs Stock I Stock II Recession .22 .045 -.37 Normal .62 .355 .29 Irrational .16 exuberance .215 .47 The market risk premium is 11.7 percent, and the risk-free rate is 4.7 percent. a. Calculate the beta and standard deviation of Stock I. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. b. Calculate the beta and standard deviation of Stock II. Note: Do not round intermediate calculations. Enter the standard deviation as a percent and round both answers to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskier"? a. Beta Standard deviation b. Beta Standard deviation c. Most systematic risk d. Most unsystematic risk e. "Riskier" stock 1.94 % %
Hi can you help me with these two problem down below 1. Suppose you observe the following situation: State of Economy Probability of State of Economy Return of Stock A Return of Stock B Bust .15 -.08 -.10 Normal .60 .11 .09 Boom .25 .30 .27 Calculate the expected return on each stock. 2. Indicate whether the following events might cause stocks in general to change price, and whether they might cause Big Widget Corp.’s stock to change price: The government announces that inflation unexpectedly jumped by 2 percent last month. Big Widget’s quarterly earnings report, just issued, generally fell in line with analysts’ expectations. The government reports that economic growth last year was at 3 percent, which generally agreed with most economists’ forecasts. The directors of Big Widget die in a plane crash. Congress approves changes to the tax code that will decreases the top marginal corporate tax rate. The legislation had been debated…