Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Please fill out the parts in the above table that are shaded in yellow. You will notice that there are nine line items
Please answer :
Covariance with MP
Correlation with Market Index
Beta
CAPM Req. Return
(c)
Consider information given in the table below and answers the question asked thereafter:
i. Calculate expected return on each stock? On the basis of this measure, which stock you will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of this measure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of this measure, which stock you will choose?iv. Calculate covariance and coefficient of correlation between the returns of the stocks A and B.v. Now suppose you have $100,000 to invest and you want to a hold a portfolio comprising of $35,000 invested in stock A and remaining amount in stock B. Calculate risk and return of your portfolio.
(d)
Firm A reports a Profit Margin of 6.5% and a Total Asset Turnover Ratio of 3.25. Their total asset level is $8,500,000. Assume there are 700,000 shares outstanding and the PE ratio is 11. Also, assume the Return on Equity is 16%. Based on this, calculate…
KINDLY ANSWER PART 5,6.and 7
Using the stock price data for any two companies provided below carry out the following tasks:
1.Compute, for each asset:
i.Total Returns
ii.Expected returns
iii.standard deviation
iv.Correlation Coefficient
2.Construct the variance-covariance matrix
3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio.
4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio.
5.Use Solver to determine optimal risky portfolio.
6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100)
7.Calculate Expected return and Standard Deviation for all the above combinations
8.Graph the efficient frontier
9.Graph the optimal portfolio
10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3%
11.Using hypothetical weights (A= Portfolio of Risky…
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- Using the stock price data for any two companies provided below carry out the following tasks: 1.Compute, for each asset: i.Total Returns ii.Expected returns iii.standard deviation iv.Correlation Coefficient 2.Construct the variance-covariance matrix 3.Construct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 4.Reconstruct equally weighted portfolio and calculate Expected Return, Standard Deviation and Sharpe ratio. 5.Use Solver to determine optimal risky portfolio. 6.Create hypothetical portfolios (commencing from Weight A=0 and weight B=100) 7.Calculate Expected return and Standard Deviation for all the above combinations 8.Graph the efficient frontier 9.Graph the optimal portfolio 10.Assuming that the investors prefers lower level of risk than what a portfolio of risky assets offer, introduce a risk free asset in the portfolio with a return of 3% 11.Using hypothetical weights (A= Portfolio of Risky Assets, B= 1 Risk Free…arrow_forwardWhen we test CAPM using historical data, a classic test is to regress excess returns of stocks onto the stock betas, using the following regression specification across stocks: - Rp Rf =α+By+ε where Rup - Rf is the average excess return of a security or portfolio, ẞ is the estimated beta of the security or portfolio, & is the regression residual, and a (Alpha) and y (Gamma) are regression coefficients. Based on the regression, which of the following statements are true if CAPM is true? Select all two correct statements. The Alpha is zero The Alpha is positive The Gamma is positive The Gamma is zeroarrow_forwardAn ideal value-relevant attribute is one for which the correlation coefficient of the values of the attribute and the stock prices is Group of answer choices a. +2.0 b. zero c. +1.0 d. -1.0arrow_forward
- When working with the CAPM, which of the following factors can be determined with the most precision? a. The beta coefficient of "the market," which is the same as the beta of an average stock. b. The beta coefficient, bi, of a relatively safe stock. c. The market risk premium (RPM). d. The most appropriate risk-free rate, rRF. e. The expected rate of return on the market, rM.arrow_forwardHow can one calculate beta for a stock? What are some of the factors that can lead to differences in the beta that is calculated using a regression?arrow_forward1. 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_forward
- Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? (picture)arrow_forwardThe metric that is used to show the extent to which a given stock’s return move up and down with the stock market? a. Correlation b. Beta c. Standard deviation d. Expected returnarrow_forwardWhen working with the CAPM, which of the following factors can be determined with the most precision? a. The most appropriate risk-free rate, rRF. b. The market risk premium (RPM). c. The beta coefficient, bi, of a relatively safe stock. d. The expected rate of return on the market, rM. e. The beta coefficient of "the market," which is the same as the beta of an average stock.arrow_forward
- The table below contains the covariance matrix of stock returns and the market. Assume that the assumptions of CAPM hold. 1. Find the market risk. 2. Find the systematic risk of BlueChip.arrow_forwarda. Calculate the expected return for Stock media Prima and Stock Astro 2. Calculate the standard deviation for Stock media Prima and Stock Astro 3. Calculate the covariance and correlation of coefficient for the above stock.arrow_forwardlooking for help solving standard deviation for stock x and stock y, preferably with instructions on how to solve in excel.arrow_forward
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