INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 9, Problem 7PS
Summary Introduction
To determine: The most accurate statement
Introduction: The
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Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of .6. Which of the following statements is most accurate?a. The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.b. The stock of Kaskin, Inc., has more total risk than the stock of Quinn, Inc.c. The stock of Quinn, Inc., has more systematic risk than that of Kaskin, Inc.
Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of .6. Which of the following statements is most accurate?
The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.
The stock of Kaskin, Inc., has more total risk than the stock of Quinn, Inc.
The stock of Quinn, Inc., has more systemic risk than that of Kaskin, Inc.
Suppose that, next year, you expect Intel’s stock to have a standard deviation of 30% and a beta of 1.2, and Walmart’s stock to have a standard deviation of 21% and a beta of 1.6. Based on these estimates, which stock carries more total risk? Which has more systematic risk?
A.
Walmart has both more total risk and more systematic risk.
B.
Walmart has more total risk and Intel has more systematic risk.
C.
Intel has more total risk and Walmart has more systematic risk.
D.
Intel has both more total risk and more systematic risk.
Chapter 9 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 9 - Prob. 1PSCh. 9 - Prob. 2PSCh. 9 - Prob. 3PSCh. 9 - Prob. 4PSCh. 9 - Prob. 5PSCh. 9 - Prob. 6PSCh. 9 - Prob. 7PSCh. 9 - Prob. 8PSCh. 9 - Prob. 9PSCh. 9 - Prob. 10PS
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- Landon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-free rate is 4 percent, the expected return on the market is 11.5 percent, and the betas of the two stocks are 1.2 and .9, respectively. Landon’s own forecasts of the returns on the two stocks are 13.75 percent for Furhman Labs and 10.50 percent for Garten. Calculate the required return for each stock. Is each stock undervalued, fairly valued, or overvalued?arrow_forwardStock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate ofreturn on an average stock is 13%, and the risk-free rate is 7%. By howmuch does the required return on the riskier stock exceed that on the lessrisky stock?arrow_forwardStock A has a beta of 1.2, stock B has a beta of 0.6, the expected rate of return on an average stock is 12 per cent and the risk-free rate of return is 7 per cent. By how much does the required rate return on the riskier stock exceed the required return on the less risky stockarrow_forward
- You are using the CAPM to calculate a fair return for Stardust common stock. The shares have a volatility of 36.00%, while the market has a volatility of 19.00%. The correlation between the two sets of returns is 0.30. The risk free rate is 1.00%, while the expected return on the market is 3.90%. What is the fair return for Stardust common stock?arrow_forwardTwo stock investment advisers are comparing performance. The first averaged a 19% rate of return and the second a 16% rate of return. However, the beta of the first investor was 1.5, whereas that of the second investor was 1.(a) Can you tell which investor was a better selector of individual stocks (aside from the issue of general movements in the market)? Explain your answer carefully.(b) If the T-bill rate was 3% and the market return during the period was 15%,which investor would be considered the superior stock selector?arrow_forwardThe beta coefficient for Stock C is βc = 0.4 and that for Stock D is βd = -0.5 (Stock D’s beta is negative, indicating that its rate of return rises whenever returns on most other stocks fall. There are very few negative-beta stocks, although collection agency and gold mining stocks are sometimes cited as examples.) a. If the risk-free rate is 9% and the expected rate of return on an average stock is 13%, what are the required rates of return on Stocks C and D? b. For Stock C, suppose the current price, Po, is $25; the next expected dividend, D1, is $1.50; and the stock’s expected constant growth rate is 4%. Is the stock in equilibrium? Explain, and describe what would happen if the stock were not in equilibrium.arrow_forward
- Stock A has an expected return of 7%, a standard deviation of expected returns of 35%, acorrelation coefficient with the market of -0.3, and a beta coefficient of -0.5. Stock B hasan expected return of 12%, a standard deviation of returns of 10%, a 0.7 correlation with themarket, and a beta coefficient of 1.0. Which security is riskier? Why?arrow_forwardAn individual common stock has a beta of 0.9 and a correlation coefficient of 0.9. The expected return of the stock is 20%, and the standard deviation of its returns is 12%. If a risk-free asset has an expected return of 4%, then: a) the expected return on the market portfolio is 22%. b) the market returns standard deviation is 12%. c) the beta of the market returns is 0.9. d) both a) and b) are true. e) both a) and c) are true. Pls show procedure, thanksarrow_forwardSuppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereasstock B has a volatility of 68% and a beta of 0.75.(a) Which stock has more total risk?(b) Which stock has more market risk?(c) Suppose the risk-free rate is 2% and you estimate the market’s expected return as10%. Which firm has a higher cost of equity capitalarrow_forward
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