EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 13, Problem 4PS
Summary Introduction
To calculate: The hypothesis is to be identified for a test of the second pass regression for the SML.
Introduction: The security market line (SML) is a line drawn on an outline that fills in as a graphical portrayal of the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Show your work (use of formula, etc.) in solving the problem.
Provide your answer/solution in the answer space provided below.
Answer the question:
Given the following historical returns, calculate the average return and the standard deviation:
Year
Return
1
14%
2
10%
3
15%
4
11%
Suppose that sending an analyst to an executive education program will raise the precision of the analyst’s forecasts as measured by R-square by .01. How might you put a dollar value on this improvement? Provide a numerical example.
Find the numerical value of the factor (P/A,16.3%,15).
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- In creating the T2 measure one mixes P* and T-bills to match the _____ of the market and in creating the M2 measure one mixes P* and T-bills to match the _____ of the market. Group of answer choices beta, alpha alpha, beta standard deviation, beta beta, standard deviationarrow_forwardIn a simple linear regression based on 20 observations, it is found b1 = 3.05 and se(b1) = 1.30. Consider the hypothesis : H0 : β1 = 0 and HA : β1 ≠ 0 . Calculate the value of the test statistic.arrow_forwardFind the numerical value of the factor (A/P, 30%,22).arrow_forward
- Find the numerical value of factor (F/A,19%,20) using: a) the interpolation. b) the formula.arrow_forwardYou are given the following data about Asset A and Asset B. Asset A Asset B Expected returns 8.6% 7.9% Standard Deviation 3.8% 4.6% Assuming that an investor is to choose between Asset A or Asset B, explain which asset a rational investor will choose. c) With the use of a diagram, explain why an investor will always choose a point on the SML line.arrow_forwardConsider the two air conditioning systems detailed below. Use AW analysis to determine the sensitivity of the economic decision to MARR values of 4%,6%, and 8%. Work this problem (a) by hand and (b) by spreadsheet.arrow_forward
- Suppose the average return on Asset A is 6.6 percent and the standard deviation is 8.6 percent and the average return and standard deviation on Asset B are 3.8 percent and 3.2 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. a. What is the probability that in any given year, the return on Asset A will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the probability that in any given year, the return on Asset B will be greater than 11 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. In a particular year, the return on Asset A was −4.25 percent. How likely is it that such a low return will recur at some point in the future? (Do…arrow_forwardBy using only those factors given in interesttables, find the values of the factors that follow,which are not given in your tables. Show the relationship between the factors by using factor notation, andcalculate the value of the factor. Then compare thesolution you obtained by using the factor formulaswith a direct calculation of the factor values.For example, (F/P, 8%, 38) =(F/P, 8%, 30) (F/P, 8%, 8) = 18.6253.(a) (P/F, 8%, 67)(b) (A/P, 8%, 42)(c) (P/A, 8%, 135)arrow_forwardcalculate the following Sharpe Ratio (SP) Treynor Measure Jensen Measure M2 measure T2 measure Information Ratio (appraisal ratio) Fund Average return Standard Deviation Beta coefficient Unsystematic Risk A 0.240 0.220 0.800 0.017 B 0.200 0.170 0.900 0.450 C 0.290 0.380 1.200 0.074 D 0.260 0.290 1.100 0.026 E 0.180 0.400 0.900 0.121 F 0.320 0.460 1.100 0.153 G 0.250 0.190 0.700 0.120 Market 0.220 0.180 1.000 0.000 Risk free return 0.050 0.000arrow_forward
- a. Using the data in the table below alculate the following performance measures.i. Sharpe ratioii. Treynor measureiii. Jensen’s alphaiv. M-squared measurev. T-squared measure, andvi. Appraisal ratio (information ratio) Fund Average return Standard Deviation Beta coefficient Unsystematic Risk A 0.240 0.220 0.800 0.017 B 0.200 0.170 0.900 0.450 C 0.290 0.380 1.200 0.074 D 0.260 0.290 1.100 0.026 E 0.180 0.400 0.900 0.121 F 0.320 0.460 1.100 0.153 G 0.250 0.190 0.700 0.120 Market 0.220 0.180 1.000 0.000 Risk free return 0.050 0.000 b. Out of the performance measures you calculated in part a., which one would you use undereach of the following circumstances:i. You want to select one of the funds as your risky portfolio.ii. You want to select one of the funds to be mixed with the rest of your portfolio,currently composed solely of holdings in the market-index fund.iii. You want to select one of the funds to form an actively managed stock portfolioarrow_forwardThe probability distributions of expected returns for the assets are shown in the following table: Asset A Prob Return 0.2 -5% 0.4 10% 0.4 15% a) Calculate the expected return for asset A. b) Calculate the standard deviation for asset A.arrow_forwarduppose the average return on Asset A is 7.1 percent and the standard deviation is 8.3 percent, and the average return and standard deviation on Asset B are 4.2 percent and 3.6 percent, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. a. What is the probability that in any given year, the return on Asset A will be greater than 12 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the probability that in any given year, the return on Asset B will be greater than 12 percent? Less than 0 percent? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c-1. In a particular year, the return on Asset A was −4.38 percent. How likely is it that such a low return will recur at some point in the future? (Do not round…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Essentials of Business Analytics (MindTap Course ...
Statistics
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Cengage Learning
Financial Risks - Part 1; Author: KnowledgEquity - Support for CPA;https://www.youtube.com/watch?v=mFjSYlBS-VE;License: Standard youtube license