INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Chapter 11, Problem 18PS
Summary Introduction
To calculate: Change in the price of the stock when market index rises by
Introduction: Basically change is the difference of final to the initial value. Here the stock price change is the difference of the price when market index changes. Change is positive when final price is more than the initial value.
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An index model regression applied to past monthly returns in Ford's stock price produces the following estimates, which are believed
to be stable over time:
rF = 0.1% + 1.1rM
If the market index subsequently rises by 9.0% and Ford's stock price rises by 9%, what is the abnormal change in Ford's stock price?
(Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal
places.)
Abnormal return
%
Consider an event study of the following stock.
Realised return
Market return
t = 0 (event day)
0.1
0.1
t =1
0.06
0.04
t = 2
0.03
0.02
t = 3
0.015
0.01
Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?
We know the following expected returns for stocks A and B, given the different states of the economy:
State(s) Probability E(rA,s) E(rB,s)
Recession 0.1-0.06 0.04
Normal 0.5 0.09 0.07
Expansion 0.4 0.17 0.11
What is the standard deviation of returns for stock B?
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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- Abnormal returns, if a stock has a(Alpha)=.004, b(Beta)=1.2, A. Using the market model (eq. 7.4), find the expected percent return if the market increases by 2%. B. If the actual return is 2%, 3%, or 4%, calculate the abnormal return.arrow_forwardAn index model regression applied to past monthly returns in Ford’s stock price produces the following estimates, which are believed to be stable over time:rF = .10% + 1.1rMIf the market index subsequently rises by 8% and Ford’s stock price rises by 7%, what is the abnormal change in Ford’s stock price?arrow_forwardXYZ stock's returns will have the following probability distribution during the possible states of the economy.a. Calculate the expected return on XYZ stock.b. Calculate the standard devivation of XYZ stock returns.c. Calculate the coefficient of variation of XYZ stock.State of Economy Probability Return Boom 15% 22.75% Normal 70% 12.60% Recession 15% -15.20% Expected Return: % Standard Deviation: Coefficient of Variation:arrow_forward
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Dividend disocunt model (DDM); Author: Edspira;https://www.youtube.com/watch?v=TlH3_iOHX3s;License: Standard YouTube License, CC-BY