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- Assume that CAPM does not hold and securities may earn abnormal returns. Suppose security A has a lower alpha than security B, which statement below is TRUE: Group of answer choices Security A has a lower expected return than security B Security A has a lower abnormal return than security B Security A has lower total risk than security B Security A has a lower total return than security BWhich of the following statements is CORRECT? a. Lower beta stocks have higher required returns. b. A stock's beta indicates its diversifiable risk. c. Diversifiable risk cannot be completely diversified away. d. Two securities with the same stand-alone risk must have the same betas. e. The slope of the security market line is equal to the market risk premium.Consider two securities, A and B, whose standard deviations of returns and betas are given below: Security A Security B Standard deviation 15% 25% Beta 1.30 0.75 Which security will have the higher risk premium? Security A or B?
- Which of the two securities are the best? By using probability estimates, below is the computation of ff. statistics: Statistic Security A Security B Expected return Standard deviation 12% 20% 8% 10% Requirement Calculate the coefficient of variation for each security Explain why the standard deviation and coefficient of variation give different ranking of risk. Which method is superior and why?For a two-stock portfolio, what would be the preferred correlation coefficient between the two stocks? A. None of the options are correct. B. 0.00 C. –1.00 D. +0.50 E. +1.00The covariance of the returns on the two securities, A and B, is -0.005. Thestandard deviation of A's returns is 3% and the standard deviation of B's returns is 5.5%.What is the correlation between the returns of A and B?
- ich of the following will not reduce risk in a portfolio? Select one: a. Selecting two securities that are perfectly positively correlated. b. Selecting two securities that are positively correlated. c. Selecting two securities that are perfectly negatively correlated. d. Selecting two securities that are negatively correlated.The expected returns for stocks A, B, C, D, and E are 7 %, 10%, 12%, 25%, and 18% respectively. The corresponding standard deviations for these stocks are 12%, 18%, 15%, 23%, and 15% respectively. Based on their coefficients of variation, which of the securities is least risky for an investor? Assume all investors are risk-averse and the investments will be in isolation.Choices:a. Ab. Bc. Cd. De. EWhich of the following is INCORRECT? A. Anticipated returns on any given stock are always greater than 0. B. A negative beta stock has an expected return less than the risk-free rate. C. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). D. All a stock’s risk could be unsystematic.
- 3) i) Calculate the average returns, variance and standard deviation for three securities X, Y and Z that have performed as follows. Returns % Year X Y Z 1 11 36 -3 2 6 -7 0 3 -8 21 5 4 28 -12 9 5 13 43 5 ii) Is there any basis for preferring one of these securities over the others? iii) Calculate the covariances between X, Y and Z.a) Share X and Share Y have the following returns with their respective probabilities. Share X Share Y Return Probability Return Probability 10% 0.3 15% 0.35% 0.31% 0.4-4% 0.4-10% 0.3 Calculate the following: i) The expected rate of returns for both shares. ii) The standard deviation for both shares. ii) On a stand-alone basis, select which stock is the riskier..Two securities have the following characteristics: Security A Security B Expected return 32% 17% Standard deviation 28% 34% Proportion (Weight) 55% 45% Beta 1.2 0.25 Correlation Coefficient 0.85 Determine the risk (standard deviation) of the portfolio with Securities A and B.