Question
In: Finance
Characteristic Line and Security Market Line You are given the following set of data: HISTORICAL RATES...
Characteristic Line and Security Market Line
You are given the following set of data:
| HISTORICAL RATES OF RETURN | ||||
| Year | NYSE | Stock X | ||
| 1 | - 26.5% | - 17.0% | ||
| 2 | 37.2 | 16.0 | ||
| 3 | 23.8 | 14.0 | ||
| 4 | - 7.2 | 5.0 | ||
| 5 | 6.6 | 9.9 | ||
| 6 | 20.5 | 19.4 | ||
| 7 | 30.6 | 17.9 | ||
- Use a spreadsheet (or a calculator with a linear regression
function) to determine Stock X's beta coefficient. Round your
answer to two decimal places.
Beta = - Determine the arithmetic average rates of return for Stock X
and the NYSE over the period given. Calculate the standard
deviations of returns for both Stock X and the NYSE. Round your
answers to two decimal places.
Stock X NYSE Average return, % % Standard deviation, σ % % - Assume that the situation during Years 1 to 7 is expected to
prevail in the future and both σx and bx in
the future will equal their past values). Also, assume that Stock X
is in equilibrium - that is, it plots on the Security Market Line.
What is the risk-free rate? Round your answer to
two decimal places.
%
Solutions
Expert Solution
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
jeff jeffy answered 1 year agoRelated Solutions
Characteristic Line You are given the following set of data: Historical Rates of Return Year NYSE...
Characteristic Line
You are given the following set of data:
Historical Rates of Return
Year
NYSE
Stock Y
1
4.0
%
3.5
%
2
14.3
17.7
3
19.0
9.2
4
- 14.7
- 9.0
5
- 26.5
- 12.2
6
37.2
32.1
7
23.8
6.7
8
- 7.2
3.5
9
6.6
13.9
10
20.5
22.7
11
30.6
17.0
Mean =
9.8
%
9.6
%
σ =
19.6
%
13.1
%
Use a spreadsheet or a calculator with a linear regression...
You are given the following set of data: HISTORICAL RATES OF RETURN Year NYSE Stock X...
You are given the following set of data:
HISTORICAL RATES OF RETURN
Year
NYSE
Stock
X
1
- 26.5%
- 19.0%
2
37.2
16.0
3
23.8
15.5
4
- 7.2
3.0
5
6.6
9.1
6
20.5
19.4
7
30.6
19.5
The data has been collected in the Microsoft Excel Online file
below. Open the spreadsheet and perform the required analysis to
answer the questions below.
Open spreadsheet
Use a spreadsheet (or a calculator with a linear regression
function) to determine...
You are given the following set of data: HISTORICAL RATES OF RETURN Year NYSE Stock X...
You are given the following set of data:
HISTORICAL RATES OF RETURN
Year
NYSE
Stock
X
1
- 26.5%
- 10.0%
2
37.2
21.0
3
23.8
18.5
4
- 7.2
2.0
5
6.6
8.9
6
20.5
19.9
7
30.6
18.8
Use a spreadsheet (or a calculator with a linear regression
function) to determine Stock X's beta coefficient. Round your
answer to two decimal places.
Beta =
Determine the arithmetic average rates of return for Stock X
and the NYSE over...
Risk and Rates of Return: Security Market Line Risk and Rates of Return: Security Market Line...
Risk and Rates of Return: Security Market Line Risk and Rates of
Return: Security Market Line The security market line (SML) is an
equation that shows the relationship between risk as measured by
beta and the required rates of return on individual securities. The
SML equation is given below: If a stock's expected return plots
on or above the SML, then the stock's return is
a)insufficient/sufficient? to compensate the investor for risk. If
a stock's expected return plots below...
For the given set of stock market data you are required to perform statistical analysis of...
For the given set of stock market data you are required to
perform statistical analysis of this data to find out the mean, the
variance, the mode, the median, the third quartile and the first
quartile for the full population using a Matlab program (or any
other program). You are also asked to plot the histogram, time
sequence diagram and boxplot of the whole data using Matlab (or any
other program).
66.591
85.24
65.961
75.173
77.209
67.043
81.666
69.626
65.26...
How do you write a the security characteristic line equation (SCL) using the regression outputm with...
How do you write a the security characteristic line
equation (SCL) using the regression outputm with using
stock returns?
Explain the Capital Market Line, the Security Market Line and the difference between the two.
Explain the Capital Market Line, the Security Market Line and
the difference between the
two.
Explain how you would expect each of the following events to affect the security market line...
Explain how you would expect each of the following events to
affect the security market line and the required rate of return on
a given share (imagine that each event occurs independently of the
others):
An increase in official short-term interest rates
A reduction in the degree of risk aversion in the market
An increase in the uncertainty of the share’s future
prospects
QUESTION 4 You are given the following data about expected returns on a security on the...
QUESTION 4
You are given the following data about expected returns on a
security on the LUSE where different states of the economy have the
same probability of occurrence:
State
Return
Strong
growth
9.0%
Normal
growth
6.5%
Weak
growth
2.5%
Recession
-4.5%
Required:
Compute and fully interpret the following for the
investment:
The Expected return for the security.
[3 Marks]
The volatility of the security returns using the semi
deviation.
[6 Marks]
Evaluate the security’s performance assuming a...
You find an asset that does not lie on the security market line (SML). Is there...
You find an asset that does not lie on the security market line
(SML). Is there an arbitrage opportunity? Explain, with reference
to Arbitrage Pricing Theory.
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