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- Consider the single-index model. The alpha of a stock is 0%. The return on the market index is 16%. The risk-free rate of return is 5%. The stock earns a return that exceeds the risk-free rate by 11%, and there are no firm-specific events affecting the stock performance. The β of the stock is A. 0.67. B. 1.33. C. 0.75. D. 1.50. E. 1.0.Calculate the coefficients of variation for the following stocks: Stock Expected return Standard deviation of return 1 0.065 0.25 2 0.06 0.17 3 0.14 0.24 What is the coefficient of variation for stock 1? What is the coefficient of variation for stock 2? What is the coefficient of variation for stock 3? f you want to get the best risk-to-reward trade-off, which stock should you buy? Stock 2 Stock 3 Stock 1The following three stocks are available in the market: E(R) β Stock A 10.9 % 1.18 Stock B 12.8 .98 Stock C 15.3 1.38 Market 14.3 1.00 Assume the market model is valid. The return on the market is 15.1 percent and there are no unsystematic surprises in the returns. What is the return on each stock?
- What is the reward-to-risk ratio for Stock X, in decimal form? Round your answer to 4 decimal places (example: if your answer is .03579, you should enter .0358). Margin of error for correct responses: +/- .0005. expected return (implied by market price) Beta Stock X 9.6% 1.55 S&P500 12% ? T-bills 4% ?Today, a firm has a stock price of $14.26 and an EPS of $1.15. Its close competitor has an EPS of $0.48. What would be the expected price of the competitor's stock if estimated using the method of comparables? Do not include a dollar sign in your answer.Stocks A and B have the following data. Assuming the stock market is efficient and the stocks are in equilibrium, which of the following statements is CORRECT? A B Price $25 $40 Expected growth 7% 9% Expected return 10% 12% a. The two stocks could not be in equilibrium with the numbers given in the question. b. A's expected dividend is $0.50. c. B's expected dividend is $0.75. d. A's expected dividend is $0.75 and B's expected dividend is $1.20. e. The two stocks should have the same expected dividend.
- A trading strategy called INVE3000 strategy, is created by taking two long calls (with strike K_1, premium c_1), one short put (with strike K_2 and premium p_2), and one long put (with strike K_3 and premium of p_3). We know that K_1<K_2<K_3. Please express the break-even stock prices using K_1,K_2,K_3 and c_1,p_2,p_3.Please do both questions QUESTION 1 Assume the following data for a stock: beta = 0.9; risk-free rate = 4 percent; market rate of return = 24 percent; and expected rate of return on the stock = 23 percent. Then the stock is: correctly priced. overpriced. this is the wrong answer underpriced. The answer cannot be determined. QUESTION 2 Assume the following data for a stock: beta = 1.5; risk-free rate = 8 percent; market rate of return = 18 percent; and expected rate of return on the stock = 22 percent. Then the stock is: overpriced. underpriced. this is the wrong answer correctly priced. cannot be determinedEW2 is an equal-weighted index, which is constructed using stocks ABC and XYZ. An investor wants to achieve the same performance as EW2. At time=1, stock ABC's price increases by 10% and stock XYZ's price drops by 5%. The investor has to buy stock ABC and sell stock XYZ in order to capture the performance of EW2 going forward. Group of answer choices True False
- You are given the following information: State ofEconomy Return onStock A Return onStock B Bear .112 −.055 Normal .105 .158 Bull .083 .243 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4…If Stock Z is correctly priced, you can infer that the expected market return is ____%. Do not round any intermediate work, but round your final answer to 2 decimal places (example: enter 12.34 for 12.34%). Do not enter the % sign. Margin of error for correct responses: +/- .05 expected return (implied by market price) Beta Stock Z 12% 1.48 T-bonds 5%Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 35% standard deviation of expected returns. Stock Y has a 13.0% expected return, a beta coefficient of 1.3, and a 30% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. Calculate each stock's coefficient of variation. Do not round intermediate calculations. Round your answers to two decimal places. CVx = CVy = Which stock is riskier for a diversified investor? For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is riskier. Stock Y has the higher beta so it is riskier than Stock X. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected…