The S&P 500 Index returned: 5.1%, 6.9%, -7.3%, -8.1%, 7.2% Over the same period, BergAwesome Inc. had the following returns: 4.8%, 7.3%, -6.2%, -11.7%, 8.6% How much of the variability in BergAwesome is explained by the variability in the S&P 500 Index (R2)? (%)? (recurring content question)
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Ma3.
The S&P 500 Index returned: 5.1%, 6.9%, -7.3%, -8.1%, 7.2%
Over the same period, BergAwesome Inc. had the following returns: 4.8%, 7.3%, -6.2%, -11.7%, 8.6% How much of the variability in BergAwesome is explained by the variability in the S&P 500 Index (R2)? (%)?
(recurring content question)
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- Yesterday, the S&P 500 rose by .48%. However, 1,704 issues on the NYSE declined in price while 1,367 advanced. Why might a technical analyst be concerned even though the market index rose on this day?In 2021, the annualized standard deviation of Merck & Co., Inc. (MRK) was 8.92% versus 10.34% for the market. With an assumption that the correlation between MRK's return and the market return is 0.73, MRK’s beta is closest to A. 1.02. B. 0.89. C. 0.63. D. 0.37.Say that an analyst has looked at a random sample of 50 companies in the S&P 500 to understand the association between a stock's P/E ratio and subsequent 12-month performance in the market. Assume that the resulting estimate is -0.20, indicating that for every 1.0 point in the P/E ratio, stocks return 0.2% poorer relative performance. In the sample of 52, the standard deviation was found to be 2.7. What is the standard of error?
- Historical data for the S & P 500 Index show an average excess return over Treasury bills of about 8.5 % with standard deviation of about 20 %. To the extent that these averages approximate investor expectations for the sample period, what must have been the co-efficient of risk aversion of the average investor? If the co-efficient of risk aversion were 3.5, what risk premium would have been consistent with the market’s historical standard deviation?Historical nominal returns for Company A have been 8% and -20%. The nominal returns for the market index S&P500 over the same periods were -15% and 28%. Calculate the beta for Company A. Please include equations used. ThanksYou’ve observed the following returns on SkyNet Data Corporation’s stock over the past five years: 11 percent, –10 percent, 19 percent, 18 percent, and 10 percent. a. What was the arithmetic average return on the company's stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b-1. What was the variance of the company's returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What was the standard deviation of the company’s returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
- Colin observed that the standard deviation of the return on the market index is estimated as 9.14%. If Target Corporation (TGT)’s standard deviation is 6.71% and its correlation of returns with the market index is 0.29, TGT’s beta is closest toA stock had returns of 14.43 percent, 18.87 percent, −14.99 percent, 12.39 percent, and 25.37 percent for the past five years. What is the variance of the returns? Multiple Choice • .02393 • .00282 • .15471 • .02872 .03191Consider the following annual returns of Estee Lauder and Lowe’s Companies: EsteeLauder Lowe’s Companies Year 1 23.4 % −6.0 % Year 2 −26.0 16.1 Year 3 17.6 4.2 Year 4 49.9 48.0 Year 5 −16.8 −19.0 Compute each stock’s average return, standard deviation, and coefficient of variation. (Round your answers to 2 decimal places.) ESTEE LAUDER. LOWES COMPANY Average return. %. % Standard deviation % % Coefficient of variation
- You’ve observed the following returns on Crash-n-Burn Computer’s stock over the past five years: 16 percent, –5 percent, 19 percent, 13 percent, and 10 percent. a. What was the arithmetic average return on the company’s stock over this five-year period? b-1. What was the variance of the company’s returns over this period? b-2. What was the standard deviation of the company’s returns over this period?You’ve observed the following returns on Pine Computer’s stock over the past five years: 13 percent, −13 percent, 20 percent, 25 percent, and 10 percent. a. What was the arithmetic average return on the company’s stock over this five-year period? (Do not round intermediate calculations and enter your answer as a percent rounded to 1 decimal place, e.g., 32.1.) b-1. What was the variance of the company’s returns over this period? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What was the standard deviation of the company’s returns over this period? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Average return % b-1. Variance b-2. Standard deviation %Consider the two (excess return) index-model regression results for stocks A and The risk-free rate over the period was 6%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM – rf ) 2% + 0.8(rM – rf ) R-square 0.576 0.436 Residual standard deviation, σ(e) 10.3% 19.1% Standard deviation of excess returns 21.6% 24.9% Calculate the following statistics for each stock: Alpha Information ratio Sharpe ratio Treynor measure Which stock is the best choice under the following circumstances? This is the only risky asset to be held by the investor. This stock will be mixed with the rest of the investor’s portfolio, currently composed solely of holdings in the market-index fund. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.