In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra = 3.2%. The rate of return on Bpex was only rB = 2.6%. The market today responded to very encouraging news about the unemployment rate, and M = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A 0.5%+ 1.6rM Bpex: rg-0.18 0.4rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Bpex Predicted Returns % % b. Which company do you think won the lawsuit? O Apex O Bpex

In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was ra = 3.2%. The rate of return on Bpex was only rB = 2.6%. The market today responded to very encouraging news about the unemployment rate, and M = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A 0.5%+ 1.6rM Bpex: rg-0.18 0.4rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Bpex Predicted Returns % % b. Which company do you think won the lawsuit? O Apex O Bpex

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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In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rA = 3.1%. The rate of return on Bpex was only r3 = 2.5%. The market today responded to very encouraging news about the unemployment rate, and = 3%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: ra Вpex: r B = -0.1% + 0.8rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Bpex = 0.5% + 1.1rM Predicted Returns % % b. Which company do you think won the lawsuit? Apex O Bpex
In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rA = 3.9%. The rate of return on Bpex was only rB = 3.5%. The market today responded to very encouraging news about the unemployment rate, and rM = 3.6%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: rA = 0.3% + 1.1rM Bpex: rB = −0.1% + 0.7rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) b. Which company do you think won the lawsuit? Apex Bpex
In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back today with its decision. The rate of return on Apex was rд = 3.7%. The rate of return on Bpex was only r = 3.1%. The market today responded to very encouraging news about the unemployment rate, and = 3.4%. The historical relationship between returns on these stocks and the market portfolio has been estimated from index model regressions as: Apex: A = 0.4% + 1.4rM Bpex: rB = -0.1% + 0.7rM a. What is the predicted returns for Apex & Bpex? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Apex Bpex Predicted Returns % %
Suppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis? Explain.a. The average rate of return is significantly greater than zero.b. The correlation between the return during a given week and the return during the following week is zero.c. One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall.d. One could have made higher-than-average capital gains by holding stocks with low dividend yields.
Suppose that, after conducting an analysis of past stock prices, you come up with the following observations. Which would appear to contradict the weak form of the efficient market hypothesis? A. The average rate of return is significantly greater than zero. B. The correlation between the return during a given week and the return during the following week is zero. C. One could have made superior returns by buying stock after a 10% rise in price and selling after a 10% fall. D. One could have made higher-than-average capital gains by holding stocks with low dividend yields.
You ran a regression of the excess return on Walmart's stock on the excess return on the market. You found the following: alpha=1.5%, beta-2.818, R^2=0.623. If Walmart's total volatility was 0.310 in that same period, what must have been the markets volatility in that same period.
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?
The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 Index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2% over the coming month. Beta 0.75 R-square 0.65 Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.50 instead of 0.75. The standard deviation of the monthly market rate of return is 5%. Standard Deviation of Residuals 0.06 (i.e., 6% monthly) Required: a. If he holds a $6 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, what is the standard deviation of the (now improperly) hedged portfolio? The S&P 500 currently is at 3,000 and the contract multiplier is $50. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) Standard deviation Probability of a negative return 0.00 b. What is the probability of incurring…
The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
Blue Bell stock is expected to return 8.4 percent in a boom, 8.9 percent in a normal economy, and 9.2 percent in a recession. The probabilities of a boom, normal economy, and a recession are 6 percent, 92 percent, and 2 percent respectively. What is the standard deviation of the returns on this stock? Can the calculator an excel solution be provided?
(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.35 0.30 0.35 Return 13% 14% 18% Common Stock B Return - 6% 7% 16% 20% Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.)
The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2,1% over the coming month. Beta 1.4 Standard Deviation R- of Residuals square 0.65 0.1 (i.e., 10% monthly) Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.5 instead of 1.4. The standard deviation of the monthly market rate of return is 9%. If he holds a $5,000,000 portfolio of Waterworks stock. The S&P 500 currently is at 2,000 and the contract multiplier is $50. a. What is the standard deviation of the (now improperly) hedged portfolio? (Round your answer to 3 decimal places.) Standard deviation % b. What is the probability of incurring a loss on improperly hedged portfolio over the next month if the monthly market return has an expected value of 1% and a standard deviation of 9%? The manager holds a $5 million portfolio of Waterworks…

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