There are few, if any, real companies with negative betas. But suppose you found one with B =-0.05. a-1. How would you expect this stock's rate of return to change If the overall market rose by an extra 7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum a-2 How would the stock's rate of return change If the overall market fell by an extra -7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum b. You have $1.1 million Invested in a well-diversified portfollo of stocks. Now you recelve an additional $40,000 bequest. Which of the following actions willyleld the safest overall portfollo return?

There are few, if any, real companies with negative betas. But suppose you found one with B =-0.05. a-1. How would you expect this stock's rate of return to change If the overall market rose by an extra 7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum a-2 How would the stock's rate of return change If the overall market fell by an extra -7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum b. You have $1.1 million Invested in a well-diversified portfollo of stocks. Now you recelve an additional $40,000 bequest. Which of the following actions willyleld the safest overall portfollo return?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 3P

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The standard deviation of stock returns for Stock A is 40%. The standard deviation of the market return is 20%. If the correlation between Stock A and the market is 0.70, then what is Stock A’s beta?
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?
There are few, if any, real companies with negative betas. But suppose you found one with β = −0.13. a-1. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%? Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places. a-2. How would the stock's rate of return change if the overall market fell by an extra −5%? Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places. b. You have $1.1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $32,000 bequest. Which of the following actions will yield the safest overall portfolio return?
The beta coefficient for Stock C is βc = 0.4 and that for Stock D is βd = -0.5 (Stock D’s beta is negative, indicating that its rate of return rises whenever returns on most other stocks fall. There are very few negative-beta stocks, although collection agency and gold mining stocks are sometimes cited as examples.) a. If the risk-free rate is 9% and the expected rate of return on an average stock is 13%, what are the required rates of return on Stocks C and D? b. For Stock C, suppose the current price, Po, is $25; the next expected dividend, D1, is $1.50; and the stock’s expected constant growth rate is 4%. Is the stock in equilibrium? Explain, and describe what would happen if the stock were not in equilibrium.
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A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium. The required rate of return on the stock is 15% versus a required return on an average stock of 10%. Now the required return on an average stock increases by 30.0% (not percentage points). The risk-free rate is unchanged. By what percentage (not percentage points) would the required return on your stock increase as a result of this event? Please explain your answer and show your calculations.
Stock HB has a beta of 1.5 and Stock LB has a beta of 0.5. The market is in equilibrium, with required returns equaling expected returns. Which of the following statements is CORRECT? a. If expected inflation remains constant but the market risk premium (rM – rRF) declines, the required return of Stock LB will decline but the required return of Stock HB will increase. b. If both expected inflation and the market risk premium (rM – rRF) increase, the required returns of both stocks will increase by the same amount. c. Since the market is in equilibrium, the required returns of the two stocks should be the same. d. If expected inflation remains constant but the market risk premium (rM – rRF) declines, the required return of Stock HB will decline but the required return of Stock LB will increase. e. If both expected inflation and the market risk premium (rM – rRF) increase, the required return on Stock HB will increase by…
Provide short answers to the following questions h) If the standard deviation of a stock’s return is 5% and its expected return is 8%, what it the C.V.? i) The covariance between stock A and market return is 135. The standard deviation of market’s return is15%. What is the beta of stock A?l) Is it true that a market which is efficient in its semi-strong form is automatically efficient in its weakform?
Stock R has a beta of 1.9, Stock S has a beta of 0.35, the expected rate of return on an average stock is 9%, and the risk-free rate is 7%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.
Stocks A and B have the following probability distributions of expected future returns: profitability A B 0.1 11% 27% 0.2 3 0 0.4 12 20 0.2 24 28 0.1 36 43 Calculate the expected rate of return, , for Stock B ( = 12.70%.) Do not round intermediate calculations. Round your answer to two decimal places. % Calculate the standard deviation of expected returns, σA, for Stock A (σB = 18.54%.) Do not round intermediate calculations. Round your answer to two decimal places. % Now calculate the coefficient of variation for Stock B. Do not round intermediate calculations. Round your answer to two decimal places. Is it possible that most investors might regard Stock B as being less risky than Stock A? If Stock B is more highly correlated with the market than A, then it might have the same beta as Stock A, and hence be just as risky in a portfolio sense. If Stock B is less highly correlated with the market than A, then it might have a lower beta than Stock A, and hence be…
Assume the risk-free rate is 5% and the market return is 12%. If inflation increases in the market and causes the risk-free rate to increase to 6%, what will be the change to SML? Draw the original SML and the new SML in the same graph (not in two separate graphs) to show the change. If stock A’s beta is 1.6, what will be its required return before and after the change of SML?
which one is correct? Based on Stock Z's beta of 0.9 the normal return is 9 percent. However, the actual return for Stock Z was 8 percent. What is Stock Z's abnormal rate of return? a. 1.0 percent b. 0.1 percent c. −0.1 percent d. 1.1 percent e. −1.0 percent