Q: QUESTION 8 The market risk measure in the CAPM is: O Alpha O Beta O The standard deviation of HPRS O…
A: Note: This post has two distinct questions. The first, Q8 has been answered below.
Q: What is the term ei in the single-index model equation ri = E(ri) + βiF + ei? A) the impact of…
A: The single index model shows the relationship between the return and the risk of a security. It is…
Q: c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is…
A: Since you have asked multiple question, we will solve the first question for you. If you want any…
Q: 19. The slope of the SML is determined by the value of market risk premium. a. True b. False
A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: Computation of the expected return using SML equation: Market rate is RM Let X be the required…
Q: The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20%…
A: a) Expected Rates of return = Sum of (Probability * Return) b) Standard Deviation = square root of…
Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: Answer: Ratio of beta of A to beta of B is,
Q: What is kd of investment whose Beta is 1.4 and market premium is 8% while risk free rate is 5%?
A: Here kd of investment means cost of investment, therefore we need to calculate cost of investment…
Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock's beta is 2.27. What is…
A: Following details are given in the question: Risk free rate = 5.6% Market Risk premium = 8.5%…
Q: Security Sinle-index Model Estimates X Y 2 3 1 Bi 1.5 1.3 0.8 o(e.) 3% 1% 2% Given the data for…
A: Expected Return on each security: E_X = alpha_i + Beta_i*E(r_m) = 2 + 1.5*0.08 = 2.12% Similarly,…
Q: 1. The market and Stock A have the following probability distributions: Return on Return on…
A: Coefficient of Variation = Standard Deviation / Average Return
Q: Consider two securities, A and B, whose standard deviations of returns and betas are given below:…
A: To calculate the risk premium, we use following formula. Here, Risk Premium = beta*(Market Rate of…
Q: Calculate the coefficient of variation for each security Explain why the standard deviation and…
A: Coefficient of variation of Security A: Standard deviation/ Mean(or Expected return ) = 0.20 /…
Q: Fama and French three factor model is based on market risk premium factor and two other factors. A)…
A: “Since you have posted multiple questions, we will solve first three subparts for you. To get…
Q: Which of the following statements is TRUE? O a. A decrease in the inflation rate will lead to an…
A: A security market line, or SML, is a graphical representation of the expected returns a security…
Q: The betas are identical when the projected rate of return of a security and the market are both…
A: Beta is sensitivity of stock return with overall market rate of return.
Q: The risk-free security has a beta equal to ________ , while the market portfolio's beta is equal to…
A: Beta is a measure for analyzing the volatility of a portfolio in relation to overall market.
Q: Given the following probability distributions, what are the expected returns for the Market and for…
A: State Pr i rM rJ 1 0.3 −10% 40% 2 0.4 10 −20 3 0.3 30 30
Q: Assume that the risk-free rate is 3.4%, the equity risk premium is 8%. A security with a beta of 1.2…
A: Using CAPM Model
Q: . The difference between the expected (c equired) return for the market portfolio ar he risk-free…
A: This pertains to the CAPM (capital asset pricing model). The difference between expected return on a…
Q: equals the slope of the security market line: one. beta. the market risk premium. the expected…
A: Security refers to the financial asset which doesn’t have any real value like golds and other metals…
Q: Beta is which of the following: A) standard deviation. B) total risk. C) Beta is the relationship…
A: option C is correct Beta is the relationship which is between an investment's return, and the…
Q: 1. Risk free rate represents: a. The market rate of return b. The rate provided by long term…
A: 1. Risk free rate is the rate which is expected by investor with no risks.
Q: Assume that a security is fairly priced and has an expected rate of return of 0.13. The market…
A: Expected rate return = Risk free rate of return + Beta ( Market rate of return - Bisk free rate of…
Q: The beta of a risk-free security is _____ and the beta of the overall market is _____: a. 0; 1.…
A: Beta of risk free security Since does not fluctuate with or against the market, hence beta of risk…
Q: If benchmark Sharpe’s Ratio is 1.5, return of the market is 13% and, risk free rate is 4%, standard…
A:
Q: 6-3. (Expected rate of return and risk) Louis Vuitton SE is evaluating a security. Calculate the…
A: 1 Expected Return = Σ (Return i x Probability i) Given Probability Return .2 7% .25 10%…
Q: How do you find the market risk premium and market expected return given the expected return of…
A: The rate of return earned by the investor over the risk-free rate of return is considered as market…
Q: 14. Risk free asset, the market, and stock X have the expected returns of 2%, 8%, and 12%…
A: The expected rate of return of the stock based on the risk involved in the stock is given by the…
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A: Return simply means the benefits received from an investment. When an investor makes an investment,…
Q: Consider the following information (Assume that Security M and Security N are in the same financial…
A: Systematic risk is also known as non-diversifiable risk, and it exist for entire market. It arises…
Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: Calculate the expected return using SML equation as follows: Expected return = Risk free rate +…
Q: Security A has a standard deviation of 10%. Security B . What is the covariance between the two…
A: We need to compute covariance and standard deviation as desired. Standard deviation of portfolio =…
Q: Assume the risk-free rate is 2%. Calculate the stock's expected return, standard deviation,…
A: Here we have to find out expected return by using probability method.
Q: What are the components of the risk-free rate and What is financial risk? If the standard deviation…
A: According to the rule, because you have posted multiple questions, we will answer the first question…
Q: Assume the correlation coefficient between Baker Fund and the market index is .70. What percentage…
A: The question is based on the concept of systematic risk and firm specific risk for individual stocks…
Q: It measures the sensitivity of the return of a security to changes in the return of a common index…
A: Concept- Sensitivity of the return of a security to changes in the return of a common index means…
Q: hanging the market risk premium A. Changes neither the y-intercept nor the slope of the security…
A: The market risk premium is the variations among the expected return on a market portfolio and the…
Q: Determine graphically the beta coefficients for Stocks A and B. b. Graph the Security Market Line,…
A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: 7. In a small stock market, there are three assets. The corresponding covariance matrix and the…
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Q: A stock's risk premium is equal to the: expected market risk premium times beta. expected market…
A: In the given question we are given four options regarding stock's risk premium and we need to select…
Q: We have the following information on Stocks A and B. The risk-free rate is S the market risk premium…
A: Stock is overpriced when the expected return is less than required rate and when stock is…
Q: Assume the risk-free rate is r = 3%. Consider the data below: Stock(stock 1, stock 2) Expected…
A: Weight of stock 1 (W1) =σ22-ρ12σ1σ2σ21+σ22-2ρ12σ1σ2=(30)2-0×40×30(30)2+(40)2-2×0×40×30=9002500=0.36…
Q: The security market line has a slope equal to the a) Risk-free rate b) Market risk premium c)…
A: Security market line is the line shown on a graph that represents the relationship between the…
Q: Expected return of the X security is 12% and its standard deviation is 20%. Expected return of the Y…
A: Given information : Return X security 12% Return Y security 15% Standard deviation X security…
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- Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.70 1.39 a. Expected return on market b. Risk-free rate Expected Return .180 .153 a. Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % %13. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent) REQUIRED RATE OF RETURN (Percent) 20.0 16.0 20 12.0 16 8.0 12 4.0 0 0 CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's betal Required rate of return on Happy Corp. stock 0 Happy Corp.'s new required rate of return is F 0.6, 7.6 HC's Stock ☐ 0.5 An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. 0 1.0 RISK (Beta) Tool tip: Mouse over the…11. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: CAPM Elements Value Risk-free rate (rRFrRF) ________? Market risk premium (RPMRPM) __________? Happy Corp. stock’s beta ___________? Required rate of return on Happy Corp. stock ___________? An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML.
- Suppose you observe the following situation: Security Ruby Pearl Expected Return 14.9% 21.0% Beta 0.70 2.13 A). If these two securities are correctly priced, calculate the risk-free rate. Round your answer to 4 decimal points. B). If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-A). Round your answer to 4 decimal points. C). If the current market data shows that the risk-free rate is 3.52 percent, are these securities fairly priced? Comment on your answer. Round your answers to 4 decimal points. D). Calculate the expected return and beta of an equally weighted portfolio of these two securities. Round your answers to 3 decimal points.5. Changes to the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: 20.0 REQUIRED RATE OF RETURN (Percent) 6 18.0 12.0 60 0.5 1.0 RISK (Beta) Retum on HC's Stock 20Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 11% 17 Correlation -1 Risk-free rate Standard Deviation 6% 9 Suppose that it is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.) %
- Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 6 % Interest rates (R) 2 Consumer confidence (C) 4 The return on a particular stock is generated according to the following equation: r = 15% + 1.0I + 0.5R + 0.75C + ea-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)Suppose you observe the following situation: Security Beta Expected Return E(R) Sara Corp 1.3 20% Dara Corp .8 14% Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market portfolio (Rm)?Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Risk Premium Factor Industrial production (I) Interest rates (R) Consumer confidence (C) Required: 8% 4 7 The return on a particular stock is generated according to the following equation: r = 17% +0.9/+0.5R+0.70 C+ e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 3%. Note: Do not round intermediate calculations. Round your answer to 1 decimal place. a-2. Is the stock over- or underpriced? a-1. Equilibrium rate of return a-2 Is the stock over- or underpriced? %
- 1. (Please make it quick) Draw payoff diagrams of the following portiolios as functions of the stock price ST. Show clearly the payoff from each individual security. Make sure to preserve the prices/values/premia appropriately, which are given as follows: Strike price K1 = 50 K2 = 75 K3 = 100 Price of the call 9 7 4 Price of the put 3 6 8Consider the following multifactor (APT) model of security returns for a particular stock. Factor Risk Premium 8% 9 7 Factor Inflation Industrial production Oil prices Factor Beta 1.1 0.6 0.3 a. If T-bills currently offer a 7% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) X Answer is complete but not entirely correct. Expected rate of return 19.0 X %The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 1,8 Return on HC's Stock 8.0 4.0 0 0 0.5 1.0 1.5 2.0 RISK (Beta) CAPM Elements Risk-free rate (RF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Value An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is