Suppose that the index model for stocks A and B is estimated from excess returnswith the following results:RA = 3% +0.7RM + еARB= -2% + 1.2RM + eBOM = 20% ; R-squareд = 0.20; R-squareg = 0.12What is the covariance between each stock and the market index? (Calculateusing numbers in decimal form, not percentages. Do not round yourintermediate calculations. Round your answers to 3 decimal places.)Stock AStock BCovariance

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Answered: Suppose that the index model for stocks…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the covariance and the correlation coefficient between HD and ML? For portfolio P with investment proportion of 0.4 in HD and 0.6 in ML, calculate the systematic risk, non-systematic risk, and total risk of P.
Suppose that index model for Stocks A and B is estimated from excess returns with the following results : Ra 0.04 +0.6Rm+ea , Rb = - 0.04 + 1.3Rm + eb Risk on the market is 30% , R-squared of A is 30%R - squared of B is 40% , security A residual variance is
Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the covariance and the correlation coefficient between HD and ML?
Use the following two tables to answer questions a. - e. a. Which of the above securities cannot lie on the efficient frontier? b. Why might you nonetheless include it in your portfolio? c. What is the expected return for a portfolio comprised of 40% security B and 60% security C? d. What is the standard deviation for a portfolio comprised of 40% security B and 60% security C? e. Suppose a risk-free asset with a yield of 3% exists, but only for lending. Would the highly risk-averse investor's optimal portfolio be likely to contain asset C? Why or why not?
D & R A1 10 - 3 Question 10. Minimum Variance Commodity Hedge Choc Full of Good Inc., a producer of powdered hot chocolate, has just received a large order that will require the purchase of 800 metric tons of cocoa in 3 months. The current spot price of cocoa is US $3,055 per metric ton. The standard deviation of the change in spot cocoa price is 0.2. Mr. Dulce, the CFO of Choc Full, is considering a minimum-variance hedge of this future cocoa purchase using the three-month cocoa futures contract. The contract size is 10 metric tons. The standard deviation of the change in cocoa futures price is 0.25. The covariance between the change in the spot and futures cocoa price is 0.035. The annually compounded interest rate faced by the company is 5%, the three-month storage cost is $2.5 per metric ton, and the convenience yield is $0.5 per metric ton. Compute the minimum-variance hedge ratio.
The following table reports a portion of the annual returns (in percent) for these two funds from 2000–2016. Data for Case Study 3.2 Returns (in percent) for Janus Funds Year Balanced Overseas 2000-2.16-18.57 2001-5.04-23.11 2002-6.56-23.89 2003-13.74-36.79 2004-8.71-18.58 2005-7.75-32.39 2006-10.56-47.21 2007-10.15-27.76 2008-15.22-52.75 2009-24.28-78.12 2010-7.83-19.28 2011-1.44-32.78 2012-13.07-12.42 2013-19.72-12.1 2014-8.46-13.72 2015-0.60-8.55 2016-4.51-6.91 In a report, use the sample information to 1. Calculate measures of central location to describe the similarities and the differences in these two funds’ returns. 2. Calculate measures of dispersion to assess the risk of each fund. 3. Calculate and interpret measures of correlation between the two funds.
D & R A1 10 - 7 Question 10. Minimum Variance Commodity Hedge Choc Full of Good Inc., a producer of powdered hot chocolate, has just received a large order that will require the purchase of 800 metric tons of cocoa in 3 months. The current spot price of cocoa is US $3,055 per metric ton. The standard deviation of the change in spot cocoa price is 0.2. Mr. Dulce, the CFO of Choc Full, is considering a minimum-variance hedge of this future cocoa purchase using the three-month cocoa futures contract. The contract size is 10 metric tons. The standard deviation of the change in cocoa futures price is 0.25. The covariance between the change in the spot and futures cocoa price is 0.035. The annually compounded interest rate faced by the company is 5%, the three-month storage cost is $2.5 per metric ton, and the convenience yield is $0.5 per metric ton. What is the correlation of the change in the spot and futures cocoa price?
The customer demand for a particular smart phone during Year 0 to Year 5 is given as 1,056,000, 1,032,000, 1,093,000, 1,024,000, 1,066,000, and 1,072,000. Using the Holt forecasting model with trend, what is the forecasted demand in year 10, where w = 0.4 and v = 0.5?a) 1,071,874b) 1,075,573c) 1,077,488d) 1,083,816
George Kyparisis owns a company that manufactures sailboats. Actual demand for George's sailboats during each of the past four seasons was as follows: Season 1 2 3 4Winter 1,400 1,240 1,080 920Spring 1,520 1,420 1,640 1,540Summer 1,000 2,140 2,040 1,960Fall 600 750 650 520 George has forecasted that annual demand for his sailboats in year 5 will equal 6,500 sailboats. Based on the given data and using the multiplicative seasonal model, the demand level for George's sailboats in the spring of year 5 will be nothing sailboats (enter a whole number).
There is some evidence that, in the years 1981-85, a simple name change resulted in a short-term increase in the price of certain business firms' stocks (relative to the prices of similar stocks). (See D. Horsky and P. Swyngedouw, "Does it pay to change your company's name? A stock market perspective," Marketing Science v.6, pp. 320-35,1987.) Suppose that, to test the profitability of name changes in the more recent market (the past five years), we analyze the stock prices of a large sample of corporations shortly after they changed names, and we find that the mean relative increase in stock price was about 0.87 %, with a standard deviation of 16 %. Suppose that this mean and standard deviation apply to the population of all companies that changed names during the past five years. Complete the following statements about the distribution of relative increases in stock price for all companies that changed names during the past five years. (a) According to Chebyshev's theorem, at least…
Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the standard deviation of each stock? (Hint: βi = (ρiM σi) / σM.) What is the systematic risk of each stock?
Give at least three examples from economics where each of the following type of data can be used: cross-sectional data, time series data, and panel data.

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