There are few, if any, real companies with negative betas. But suppose you found one with B =-0.05. a-1. How would you expect this stock's rate of return to change If the overall market rose by an extra 7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum a-2 How would the stock's rate of return change If the overall market fell by an extra -7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum b. You have $1.1 million Invested in a well-diversified portfollo of stocks. Now you recelve an additional $40,000 bequest. Which of the following actions willyleld the safest overall portfollo return?

There are few, if any, real companies with negative betas. But suppose you found one with B =-0.05. a-1. How would you expect this stock's rate of return to change If the overall market rose by an extra 7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum a-2 How would the stock's rate of return change If the overall market fell by an extra -7%? (A negative answer should be Indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places.) Change in stook's rate of retum b. You have $1.1 million Invested in a well-diversified portfollo of stocks. Now you recelve an additional $40,000 bequest. Which of the following actions willyleld the safest overall portfollo return?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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?
Suppose the beta coefficient of a stock doubles from B1= 1.0 to B2=2.0. Logic says that the required rate of return on the stock should also double, Is this correct?
What is a stock's realized abnormal return if the stock had a 3% return and the stock had a Beta=1.24, an Alpha=0 and the excess market return was 3.3%. assume the risk free rate is 0%. Please write negative returns using the "-" symbol, so a negative 1% return would be written as -.01
Provide short answers to the following questions h) If the standard deviation of a stock’s return is 5% and its expected return is 8%, what it the C.V.? i) The covariance between stock A and market return is 135. The standard deviation of market’s return is15%. What is the beta of stock A?l) Is it true that a market which is efficient in its semi-strong form is automatically efficient in its weakform?
Suppose =6%, 11%, and by = 1.3. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose nr increases to 7%. The slope of the SML remains constant. How would this affect г and n? I. г will increase by 1 percentage point and r will remain the same. II. Both г and n will decrease by 1 percentage point. III. Both г and will remain the same. IV. Both г and n will increase by 1 percentage point. -Select- V. r will remain the same and will increase by 1 percentage point. 2. Now suppose FRF decreases to 5%. The slope of the SML remains constant. How would this affect and n? I. г will decrease by 1 percentage point and r, will remain the same. II. г will remain the same and r will decrease by 1 percentage point. III. Both г and n will increase by 1 percentage point. IV. Both г and n will remain the same. V. Both г and will decrease by 1 percentage point. -Select- ✓ c. 1. Now assume that RF remains at 6%, but г increases to 12%. The slope…
There are few, if any, real companies with negative betas. But suppose you found one with β = −0.13. a-1. How would you expect this stock's rate of return to change if the overall market rose by an extra 5%? Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places. a-2. How would the stock's rate of return change if the overall market fell by an extra −5%? Note: A negative answer should be indicated by a minus sign. Input your answer as a percent rounded to 2 decimal places. b. You have $1.1 million invested in a well-diversified portfolio of stocks. Now you receive an additional $32,000 bequest. Which of the following actions will yield the safest overall portfolio return?
Suppose stock A's return is related to the market return by: RetA=0.6*Market Return + 0.04* (Market Return)² What is the change in stock A given a change in the market return? Suppose stock B's return is related to the market return by: RetB=0.6*Market Return What is the difference in returns between A and B if the market return is 5%? What is the difference if the market return is -5%?
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 2.36. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format. For example, if you answer is 3.33%, enter "0.0333"
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 1.25. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format, to 4 decimal places. For example, if you answer is 3.33%, enter "0.0333".
You are given the following information: State of Economy Bear Normal Bull Return on Stock A a. Stock A Stock B b. Stock A Stock B 114 103 085 Assume each state of the economy is equally likely to happen. a. Calculate the expected return of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation of each stock. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the covariance between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 6 decimal places, e.g., .161616.) d. What is the correlation between the returns of the two stocks? (A negative answer should be indicated by a minus sign, Do not round intermediate calculations and round your answer to 4 decimal places, e.g., .1616.) Return on Stock B C.…
Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) a. The effect of a change in the market risk premium depends on the slope of the yield curve. b. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. c. If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0. d. The effect of a change in the market risk premium depends on the level of the risk-free rate. e. If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0.
Suppose you estimate that the correlation between Abercrombie and Fitch (ANF) stock returns with market portfolio returns is 0.85. You also estimate that ANF's stock return's are twice as variable (σANFσM=2.0). Therefore, what is the the beta for ANF stock (βANF) ?

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