You have been provided the following data on the securities of three firms, the market portfolio, and therisk-free asset:a. Fill in the missing values in the table. (Leave no cells blank - be certain to enter O wherever required.Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)StandardDeviationSecurityExpected ReturnCorrelationBetaFirm A.118.23.94Firm B.132.421.49Firm C.113.74.27The market portfolio.1220The risk-free asset.es"With the market portfolio.b-1. According to the CAPM, what is the expected return of Firm A's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Expected returnb-2. What is your investment recommendation for someone with a well-diversified portfolio?Sell• Buyb-3. According to the CAPM, what is the expected return of Firm B's stock? (Do not round intermediatecalculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Expected return16%b-4. What is your investment recommendation for someone with a well-diversified portfolio?O Sell

By using the above formula we calculate the missing figures for different stocks. Beta of the market…

Answered: You have been provided the following…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have been provided the following data on the securities of three firms and the market: Security E[Ri] s.d (Ri) Corr(Ri, Rm) Beta i Firm one _____A____ _____B____ 1.0 0.85 Firm two _____C____ 0.18 0.7 _____D____ Firm three _____E____ 0.05 _____F_____ 0.8 The market 0.10 0.04 1.2 _____G_____ Risk-free asset 0.08 0 0 0 Assume that the CAPM and SML are true. Fill in the missing values in the table. (Show the calculation process and results)
Assume that the CAPM holds. Although you currently own shares of two well-known securities, A and B, you are interested in improving upon your portfolio of assets. From the currently available information, you are aware that the average historical market risk premium is 5.3% and that the return on T-Bills is 3%. You also have the following data: image a) Asset A is undervalued and therefore I will long the asset. b) Asset B is overvalued and therefore I will short the asset. c) Asset C is undervalued and therefore I will long the asset. d) a) and d) are true. e) None of the above. Pls show procedure, thanks
Below is a table of probabilities and expected returns for 2 securities under 3 possible scenarios: Posible outcomes Prababilty Rate of return Company G Rate of return Company H Bullish Trend 0.3 50% 25% Normal Trend 0.4 20% 15% Bearish Trend 0.3 10% 15% Required: On the basis of Expected Rate of Return, Standard Deviation, Variance and Coefficient of variation decide which of the above companies is best for investment (Single company Risk analysis).
Using the data generated in the graph, show what the information looks like in a spreadsheet. a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above, and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph.
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Col 1.39 0.153 What is the risk-free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places) Risk-free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. Repete Co.%
PLEASE ANSWER ALL THE QUESTIONS Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nine line items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph Question 3 From the information generated in the previous two questions; a) Identify two investment alternatives that can be combined in a portfolio. Assume a 50-50 investment allocation in each investment alternative. b) Compute the expected return of the portfolio thus formed. c) Compute the portfolio’s beta. Is the portfolio aggressive or defensive?
Consider the following factor model: E[R] - rf = b Mkt (E[RMkt] - rf) + b SMB E[R$MB] + b The term b O size. SMB measures the sensitivity of the securities returns to: book-to-market. momentum. HML E[RHML] the overall market.
Please do a and b separate (Question 2) a) Plot the Security Market Line (SML)b) Superimpose the CAPM’s required return on the SMLc) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the graph.
Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180 Repete Co. 1.39 0.153 What is the risk - free rate? (Do not round intermediate calculations. Round the final answer to 3 decimal places.) Risk - free rate % Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations. Round the final answers to 2 decimal places.) Expected Return on Market Pete Corp. % Repete Co. %
Below is a table of probabilities and expected returns for 2 securities under 3 possible scenarios: Possible Outcomes Probability Rate of Return Company G Company H Bullish Trend 0.3 50% 25% Normal Trend 0.4 20% 15% Bearish Trend 0.3 (10)% 15% Required: On the basis of Expected Rate of Return, Standard Deviation, Variance and Coefficient of variation decide which of the above companies is best for investment (Single company Risk analysis)
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 3.8% + 1.25RM + eA RB = –1.8% + 1.60RM + eB σM = 18%; R-squareA = 0.24; R-squareB = 0.18 What are the covariance and correlation coefficient between the two stocks? (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.)
Which of the following most accurately describes fundamental analysis? a. Makes use of trend chart patterns to determine intrinsic value of security.b. Makes use of information derived from stock prices patterns and movementsc. Makes use of P/E ratiod. Makes use of bottom-up approache. All of the abovef. None of the above

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