INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Chapter 11, Problem 16PS
Summary Introduction
To determine: To explain on the statement that the returns offered by a stock will be predictable, if the cycle of a business is predictable and the stock of the company has a positive beta.
Introduction: The Stock Market Returns are those returns that are earned by the investors through investing in the shares trading in the stock market. Such returns could be either in the form of surplus generated by share price movements or in the form of dividends issued by the company.
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Students have asked these similar questions
b) "If a stock had high returns so far, it will have low returns in the future". Discuss whether this
statement is true or false, based on the knowledge of the different theories and models out
there.
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.
According to the CAPM, a stock's expected return is positively related to its beta. True or False True False
Chapter 11 Solutions
INVESTMENTS(LL)W/CONNECT
Ch. 11 - Prob. 1PSCh. 11 - Prob. 2PSCh. 11 - Prob. 3PSCh. 11 - Prob. 4PSCh. 11 - Prob. 5PSCh. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Prob. 9PSCh. 11 - Prob. 10PS
Ch. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Prob. 14PSCh. 11 - Prob. 15PSCh. 11 - Prob. 16PSCh. 11 - Prob. 17PSCh. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Prob. 23PSCh. 11 - Prob. 24PSCh. 11 - Prob. 25PSCh. 11 - Prob. 26PSCh. 11 - Prob. 27PSCh. 11 - Prob. 28PSCh. 11 - Prob. 29PSCh. 11 - Prob. 1CPCh. 11 - Prob. 2CPCh. 11 - Prob. 3CPCh. 11 - Prob. 4CPCh. 11 - Prob. 5CPCh. 11 - Prob. 6CPCh. 11 - Prob. 7CPCh. 11 - Prob. 8CPCh. 11 - Prob. 9CPCh. 11 - Prob. 10CP
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- 1. Calculate the Expected Return, Standard Deviation, and Beta for each stock. 2. Which stock has more systematic risk and which one has more unsystematic risk? Which stock is "riskier"? Explain your answer completely. Use excel to show formulas and calculationsarrow_forwardThe efficient markets hypothesis identifies three forms of market efficiency. (a) You observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency? (b) If the weak form of the efficient market hypothesis is valid, must the strong form also hold? Conversely, does strong form efficiency imply weak form efficiency? (c) Stock XYZ, which traded for several months at a price of K72, and then declines to K65. if the stock eventually begins to increase in price, K72 is considered a resistance level because investors who bought originally at K72 will be eager to sell their shares as soon as they can break even on their investment. If everyone in the market believes in resistance levels, why do these beliefs not become self-fulfilling prophecies?arrow_forward1. Beta is positively related A. the degree of correlation between a stock's return and the market return B. the systematic risk of a stock C. risk premium required by the stock D. all of the abovearrow_forward
- Determine whether stock prices are affected more by long-term or short-term performance. Provide an example of the effect that supports your claim.arrow_forwardAssume that the risk-free rate remains constant, but the market risk premium declines. Which of the following is most likely to occur? a. The required return on a stock with beta = 1.0 will not change. b. The required return on a stock with beta > 1.0 will increase. c. The return on "the market" will increase. d. The return on "the market" will remain constant. e. The required return on a stock with a positive beta < 1.0 will decline.arrow_forwardWhich of the following statements about 'beta' is correct? Is a measure of stand-alone risk. A low beta means that a stock is more volatile than the market Is a measure of a stock's volatility relative to the market. OA high beta means that a stock is less volatile than the marketarrow_forward
- 3. Which of the following statements about a stock's beta is true? (a) A beta greater than one is less risky than the market (b) A beta less than one is risk-free (c) A beta greater than one is overvalued (d) A beta greater than one is riskier than the marketarrow_forwarda) Discuss why international stock might have high volatility but low betas.arrow_forwardBased on the CAPM model, a stock with a negative beta has which of the following characteristics? A. An expected return less than zero. B. An expected return equal to the risk-free rate. C. Since these are so rare, the CAPM model does not account for negative beta stocks. D. An expected return less than the risk-free rate.arrow_forward
- When can investors treat beta as a relevant risk measure and when can they treat beta as only a systematic risk measure? Explain the two cases clearly and carefully (Explain using a graph and make sure you label the axes)arrow_forward1. Suppose stock A has a higher volatility than stock B. According to CAPM, which one is expected to deliver a higher return? A. A B. B C. The information provided is insufficient D. None of above is correctarrow_forwardHello Can you please assist with question 6 attached. The question is: What is the probability that the economy will be neutral and the stock will experience poor performance?arrow_forward
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