(Related to Checkpoint 8.3) (CAPM and expected returns) a. Given the following holding period returns, compute the average returns and the standard deviations for the Sugita Corporation and for the market. b. If Sugita's beta is 1.36 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Sugita's historical average retum compare with the return you should expect based on the Capital Asset Pricing Model and the firm's systematic risk? a. Given the holding-period returns shown in the table, the average monthly return for the Sugita Corporation is % (Round to three decimal places) Data table Month Sugita Corp 22% 0.0 1.0 -1.0 7.0 7.0 (Click on the icon in order to copy its contents into a spreadsheet) 2 3 CED Print Done Market 1.2% 2.0 3.0 -1.0 7.0 0.0 X

(Related to Checkpoint 8.3) (CAPM and expected returns) a. Given the following holding period returns, compute the average returns and the standard deviations for the Sugita Corporation and for the market. b. If Sugita's beta is 1.36 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Sugita's historical average retum compare with the return you should expect based on the Capital Asset Pricing Model and the firm's systematic risk? a. Given the holding-period returns shown in the table, the average monthly return for the Sugita Corporation is % (Round to three decimal places) Data table Month Sugita Corp 22% 0.0 1.0 -1.0 7.0 7.0 (Click on the icon in order to copy its contents into a spreadsheet) 2 3 CED Print Done Market 1.2% 2.0 3.0 -1.0 7.0 0.0 X

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12P

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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?
Investment advisors estimated the stock market returns for four market segments: computers, financial, manufacturing, and pharmaceuticals. Annual return projections vary depending on whether the general economic conditions are improving, stable, or declining. The anticipated annual return percentages for each market segment under each economic condition are as follows: Assume that an individual investor wants to select one market segment for a new investment. A forecast shows improving to declining economic conditions with the following probabilities: improving (0.2), stable (0.5), and declining (0.3). What is the preferred market segment for the investor, and what is the expected return percentage? At a later date, a revised forecast shows a potential for an improvement in economic conditions. New probabilities are as follows: improving (0.4), stable (0.4), and declining (0.2). What is the preferred market segment for the investor based on these new probabilities? What is the expected return percentage?
a. Given the following holding-period returns, (Below)compute the average returns and the standard deviations for the Sugita Corporation and for the market. b. If Sugita's beta is 1.18and the risk-free rate is 4 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Sugita's historical average return compare with the return you should expect based on the Capital Asset Pricing Model and the firm's systematic risk?
a. Given the following holding-period returns, LOADING... , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.87 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? Month Zemin Corp. Market 1 5 % 6 % 2 2 1 3 2 0 4 −4 −1 5 4 3 6 3 4
(CAPM and expected returns) a. Given the following holding-period returns, LOADING... Month Zemin Corp. Market 1 8 % 5 % 2 5 4 3 0 2 4 −4 −1 5 6 4 6 3 3 , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.12 and the risk-free rate is 7 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? Question content area…
(Related to Checkpoint 8.3) (CAPM and expected returns) a. Given the following holding-period returns, LOADING... , compute the average returns and the standard deviations for the Sugita Corporation and for the market. b. If Sugita's beta is 1.89 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Sugita's historical average return compare with the return you should expect based on the Capital Asset Pricing Model and the firm's systematic risk? Month Sugita Corp. Market 1 2.4 % 1.0 % 2 −0.8 2.0 3 1.0 2.0 4 −1.0 −1.0 5 6.0 7.0 6 6.0…
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: CAPM Elements Value Risk-free rate (rRF) Q1 Market risk premium (RPM) Q2 Happy Corp. stock’s beta Q3 Required rate of return on Happy Corp. stock Q4 An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.’s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst’s prediction. Happy Corp.’s new required rate of return is Q5.____ The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the Q6.____ the slope of the SML. Q7. Which of the…
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. For graph see image 13a CAPM Elements Value Risk-free rate (rRFRF) Market risk premium (RPMM) Happy Corp. stock’s beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.’s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst’s prediction. Happy Corp.’s new required rate of return is _____?. For grapgh see image 13b The SML helps determine the level of risk aversion among investors.…
During the past 5-year, the monthly average return and standard deviation of Netflix (NFLX) stock were 3.5% and 10%, respectively. For the same period, the monthly average return and standard deviation of Verizon (VZ) were 0.6% and 4.6%, respectively. The correlation between NFLX and VZ was -0.1. Assume that the monthly risk-free rate is 0.1%. ) What is the Sharpe ratio for NFLX? What is the Sharpe ratio for VZ? Show your calculation steps briefly and clearly. Find the minimum-variance portfolio (MVP), i.e., the weight of NFLX and VZ in the MVP. You do not need to show your calculation steps for this subquestion. Find the optimal risky portfolio P*, i.e., the weight of NFLX and VZ in P*. You do not need to show your calculation steps for this subquestion. Calculate the Sharpe ratio for the optimal risky portfolio P*. Verify that P* offers a higher Sharpe ratio than NFLX and VZ.
The following data represent the probability distribution of the holding period returns for an investment in Lazy Rapids Kayaks (LARK) stock. State of the Economy Scenario #(s) Probability, p(s) HPR Boom 1 0.348 31.60% Normal growth 2 0.432 6.90% Recession 3 0.220 -19.20% a. What is the expected return on LARK? (Round your answer to 2 decimal places.) b. What is the standard deviation of the returns on LARK? (Round your answer to 2 decimal places.)
May I have the step by step calculations for the following: Linke Motors has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?