Homework Answers
Beta of stock=correlation of stock with market*volatility of stock/volatility of market
Hence, beta of stock*volatility of market=correlation of stock with market*volatility of stock=0.7*35%
Sharpe Ratio=(return-risk free rate)/volatility
=>return of stock-risk free rate=volatility of stock*Sharpe ratio of stock=35%*0.4=14%
and
return of market-risk free rate=volatility of market*Sharpe ratio of market=volatility of market*0.5
alpha=return of stock-risk free rate-beta of stock*(return of market-risk free rate)=14%-beta of stock*volatility of market*0.5=14%-0.7*35%*0.5=1.75%
Add Answer to:
Problem 8 You are given the following information about a stock X: i) The stock has...
A stock has a correlation with the market of 0.4. If the Sharpe ratio of the...
A stock has a correlation with the market of 0.4. If the Sharpe ratio of the market portfolio is 0.7, what is the Sharpe ratio of the stock? (Hint: algebraically manipulate the SML equation.) A. 0.28 B. 0.75 C. 0.60 D. 0.55
please work all parts. 2. Stock A has expected return of 14% and volatility 30%. Stock...
please work all parts.
2. Stock A has expected return of 14% and volatility 30%. Stock B has expected return of 8% and volatility 19%. The correlation between two stocks is -0.2. The risk free interest rate is 4% (a) Find the expected returns, volatilities, and Sharpe ratios of portfolios that maintain 100.0% investment in Stock A and 100(1-x)% in Stock B, where x is given in the following table. Volatility Expected return Sharpe ratio 0.8 0.9 1.0 (b) How...
You are given the following information concerning a stock and the market: Returns Year Market Stock...
You are given the following information concerning a stock and the market: Returns Year Market Stock 2011 20 % 32 % 2012 10 10 2013 20 4 2014 −15 −29 2015 37 16 2016 15 16 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Calculate the correlation between the stock and...
You are given the following information concerning a stock and the market: Returns Year Market Stock...
You are given the following information concerning a stock and the market: Returns Year Market Stock 2011 15 % 27 % 2012 14 30 2013 15 6 2014 −14 −24 2015 37 16 2016 15 25 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. Calculate the correlation between the stock and...
Problem 9 You are given the following information about a firm and the equity-debt structure of...
Problem 9 You are given the following information about a firm and the equity-debt structure of this firm: i) The amount of long-term outstanding debt is 150,000. ii) The debt is risk-free and is financed at an interest rate of 7%. iii) Number of shares of common stock is 40,000. iv) The price per share is 15. v) The stock's beta is 1.2. vi) The expected market return is 14%. Calculate the firm's before-tax cost of capital.
Stock X has systematic risk of β = 1 and the analyst forecasts its return to be 12%. Stock Y has β = 1.5 and a forecast...
Stock X has systematic risk of β = 1 and the analyst forecasts its return to be 12%. Stock Y has β = 1.5 and a forecast return of 13%. The market portfolio’s expected return is 11%, and rf = 5%. i. According to the CAPM, what are the required returns of the two stocks? ii. What is the alpha of each stock? Which stock is a better buy? iii. Draw the SML. Mark each stock’s CAPM required rate of...
Bear Normal Bull Market Market Market Probability 15.00% 50.00% 35.00% Stock X -12.00% 10.00% 21.00% Stock...
Bear Normal Bull Market Market Market Probability 15.00% 50.00% 35.00% Stock X -12.00% 10.00% 21.00% Stock Y -22.00% 14.00% 39.00% 3.c) If the risk–free rate of return is 2.95%, what are the Sharpe Ratios for stocks X and Y (8 points)? (Please assume that the standard deviations of the excess returns are the same as the standard deviations of returns calculated in part b) Given that- i ii iii iv=i*ii v=i*iii vi=i*(ii-10.55%%)^2 vii=i*(iii-17.35%)^2 Probability X Y Expected return X Expected...
2. Stock X has a beta of 1.5 and cost of capital of 15% estimated by...
2. Stock X has a beta of 1.5 and cost of capital of 15% estimated by CAPM. If we want to estimate X's return volatility based on its past returns, which distribution should we follow sample distribution or population distribution? b. Suppose there is another stock Y whose beta is 0.7 and estimated cost of capital of 10%. What is the expected market return and risk-free rate by assumption? c. Take 15% as expected return of X and 10% as...
You are given the following information concerning a stock and the market Returns Market Stock Year...
You are given the following information concerning a stock and the market Returns Market Stock Year 15% 27% 19 2011 2012 19 2013 25 5 2014 -12 -22 2015 35 16 2016 15 27 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Market Stock % Average return Standard deviation b. Calculate the...
Problem 6 You are given the following information about a project: i) It is expected to...
Problem 6 You are given the following information about a project: i) It is expected to generate 6 million per year of revenues perpetually. ii) The cost of capital for the project is 12%. iii) The fixed costs of the project are 1 million per year. iv) The variable costs of the project are 15% of revenues. v) The annual effective risk-free rate is 4%. Calculate: a) The value of the project. b) The operating leverage of the project.
please work all parts.
2. Stock A has expected return of 14% and volatility 30%. Stock B has expected return of 8% and volatility 19%. The correlation between two stocks is -0.2. The risk free interest rate is 4% (a) Find the expected returns, volatilities, and Sharpe ratios of portfolios that maintain 100.0% investment in Stock A and 100(1-x)% in Stock B, where x is given in the following table. Volatility Expected return Sharpe ratio 0.8 0.9 1.0 (b) How...
Problem 9 You are given the following information about a firm and the equity-debt structure of this firm: i) The amount of long-term outstanding debt is 150,000. ii) The debt is risk-free and is financed at an interest rate of 7%. iii) Number of shares of common stock is 40,000. iv) The price per share is 15. v) The stock's beta is 1.2. vi) The expected market return is 14%. Calculate the firm's before-tax cost of capital.
2. Stock X has a beta of 1.5 and cost of capital of 15% estimated by CAPM. If we want to estimate X's return volatility based on its past returns, which distribution should we follow sample distribution or population distribution? b. Suppose there is another stock Y whose beta is 0.7 and estimated cost of capital of 10%. What is the expected market return and risk-free rate by assumption? c. Take 15% as expected return of X and 10% as...
You are given the following information concerning a stock and the market Returns Market Stock Year 15% 27% 19 2011 2012 19 2013 25 5 2014 -12 -22 2015 35 16 2016 15 27 a. Calculate the average return and standard deviation for the market and the stock. (Use Excel to complete the problem. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Market Stock % Average return Standard deviation b. Calculate the...
Problem 6 You are given the following information about a project: i) It is expected to generate 6 million per year of revenues perpetually. ii) The cost of capital for the project is 12%. iii) The fixed costs of the project are 1 million per year. iv) The variable costs of the project are 15% of revenues. v) The annual effective risk-free rate is 4%. Calculate: a) The value of the project. b) The operating leverage of the project.
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 10 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 10 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 10 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 10 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 10 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 10 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 10 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 10 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 10 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 10 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 10 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 10 months ago