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- The returns of two securities have a strong negative relationship. The most likely covariance between them is Group of answer choices -1.05 -105 +20 -300 any of the above except cConsider 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?Assume that security returns are generated by the single-index model, Ri = αi + βiRM + ei where Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 1.4 14 % 23 % B 1.6 16 14 C 1.8 18 17 a. If σM = 22%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)
- Assume that security returns are generated by the single-index model,Ri = αi + βiRM + eiwhere Ri is the excess return for security i and RM is the market’s excess return. The risk-free rate is 2%. Suppose also that there are three securities A, B, and C, characterized by the following data: Security βi E(Ri) σ(ei) A 0.7 7 % 20 % B 0.9 9 6 C 1.1 11 15 a. If σM = 16%, calculate the variance of returns of securities A, B, and C. b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)Which of the following statements is CORRECT? a. The slope of the Security Market Line is beta. b. Any stock with a negative beta must in theory have a negative required rate of return, provided rRF is positive. c. If a stock's beta doubles, its required rate of return must also double. d. If a stock's returns are negatively correlated with returns on most other stocks, the stock's beta will be negative. e. If a stock has a beta of to 1.0, its required rate of return will be unaffected by changes in the market risk premium.Security X has expected return of 14% and standard deviation of 22%. Security Y has expected return of 16% and standard deviation of 28%. If the two securities have a correlation coefficient of 0.8, what is their covariance? 0.049 0.038 0.018 0.013
- 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 BAn individual stock with a beta greater than 1.0 is a. Same as risky as the market b. Riskier that the market c. Less risky as the market d. It has no relationship with the marketAccording to the CAPM, a stock's expected return is positively related to its beta. True or False True False
- A portfolio that is positively correlated with the market portfolio but not particularly sensitive to market risk factors would have a beta that is A. Equal to zero. B. Equal to one. C. Less than zero. D. Between 0 and 1. E. Greater than 1.The 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?What is the formula for the Sharpe Ratio for a two-asset portfolio of stocks and bonds with equal expected returns, i.e., E(RS)= E(RB), and a perfect negative correlation. Can use XS, sS for the portfolio weight and standard deviation of stocks, and XB, sB for the portfolio weight and standard deviation of bonds.