Which of the following is false when the tails of a future stock price distribution are compared with those of a lognormal distribution with the same mean and standard deviation? Group of answer choices The right tail implies a reduced likelihood of extreme market movements compared with the log normal. The right tail is thinner

Which of the following is false when the tails of a future stock price distribution are compared with those of a lognormal distribution with the same mean and standard deviation? Group of answer choices The right tail implies a reduced likelihood of extreme market movements compared with the log normal. The right tail is thinner

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 9MC

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Similar questions

What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
Which of the following statements is INCORRECT? A stock's beta is calculated as the covariance between the stock's price and the market portfolio return, divided by the variance of the market portfolio return. If we assume that the market portfolio (or the S&P 500) is efficient, then changes in the value of the market portfolio represent systematic shocks to the economy. The risk premium investors can earn by holding the market portfolio is the difference between the market portfolio's expected return and the risk-free interest rate. A stock’s standard deviation is a measure of the total risk.
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A stock's returns have the following distribution: Demand for theCompany's Products Probability of ThisDemand Occurring Rate of Return IfThis Demand Occurs Weak 0.1 (42%) Below average 0.1 (10) Average 0.4 14 Above average 0.3 35 Strong 0.1 48 1.0 Assume the risk-free rate is 3%. With excel, calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: % Standard deviation: % Coefficient of variation: Sharpe ratio:
Consider the two (excess return) index model regression results for A and B: RA = 0.8% + 1RM R-square = 0.588 Residual standard deviation = 10.8% RB = –1.2% + 0.7RM R-square = 0.452 Residual standard deviation = 9% a. Which stock has more firm-specific risk? A. Stock A B. Stock B Which stock has greater market risk? A. Stock A B. Stock B b. For which stock does market movement has a greater fraction of return variability? A. Stock A B. Stock B c. If rf were constant at 4.5% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
Please also explain calculations/steps. A stock's returns have the following distribution: Demand for theCompany's Products Probability of ThisDemand Occurring Rate of Return IfThis Demand Occurs Weak 0.1 (20%) Below average 0.1 (5) Average 0.5 15 Above average 0.2 27 Strong 0.1 50 1.0 Assume the risk-free rate is 2%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places. Stock's expected return: % Standard deviation: % Coefficient of variation: Sharpe ratio:
Consider the two (excess return) index model regression results for A and B. RA= 0.9% + 1.1RM , R-square = 0.590, and Residual Standard Deviation = 11% RB= -1.4% + 0.6RM, R-square = 0.456, and Residual Standard Deviation = 9.2% Which stock has more firm-specific risk, market risk, and greater fraction of return variability for market movement? Also, if rf were constant at 4.4% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A (write as percentage, rounded to 2 decimal places)?
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