Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns.

	Stock A	Stock B
Index model regression estimates	1% + 1.2(r_M − r_f)	2% + 0.8(r_M − r_f)
R-square	0.611	0.454
Residual standard deviation, σ(e)	10.9%	19.7%
Standard deviation of excess returns	22.2%	26.1%

a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.)

Stock A & Stock B

i.Alpha

ii.Information ratio

iii.Sharpe ratio

iv.Treynor measure

Solutions

Expert Solution

jeff jeffy answered 3 months ago

Next > < Previous

Related Solutions

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 8%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.665 0.481 Residual standard deviation, σ(e) 11.8% 20.6% Standard deviation of excess returns 23.1% 27.9% a. Calculate the following statistics for each...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.635 0.466 Residual standard deviation, σ(e) 11.3% 20.1% Standard deviation of excess returns 22.6% 26.9% a. Calculate the following statistics for each...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market’s average return was 15%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.641 0.469 Residual standard deviation, σ(e) 11.4% 20.2% Standard deviation of excess returns 22.7% 27.1% a. Calculate the following statistics for each...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market’s average return was 15%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.594 0.445 Residual standard deviation, σ(e) 10.6% 19.4% Standard deviation of excess returns 21.9% 25.5% a. Calculate the following statistics for each...

Problem 24-9 Consider the two (excess return) index-model regression results for stocks A and B. The...

Problem 24-9 Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the market’s average return was 15%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM ? rf) 2% + 0.8(rM ? rf) R-square 0.617 0.457 Residual standard deviation, ?(e) 11% 19.8% Standard deviation of excess returns 22.3% 26.3% a. Calculate the following statistics...

Consider the two (excess return) index model regression results for A and B: RA = –1.8%...

Consider the two (excess return) index model regression results for A and B: RA = –1.8% + 2RM R-square = 0.640 Residual standard deviation = 12.6% RB = 1.4% + 1RM R-square = 0.590 Residual standard deviation = 11.4% If rf were constant at 6% and the regression had been run using total rather than excess returns, what would have been the regression intercept for stock A? (Negative value should be indicated by a minus sign. Round your answer to...

Consider the two (excess return) index model regression results for stock A and B RA =...

Consider the two (excess return) index model regression results for stock A and B RA = 0.01 + 1.2RM R2 of 0.576; Std deviation of error term of 10.3% RB = -0.02 + 0.8RM R2 of 0.436; Std deviation of error term of 9.1% a) Which stock has more firm-specific risk? Explain [4 points] b) Which has greater market risk? Explain [4 points] c) For which stock does market movement explain a grater fraction of return variability? Explain [4 points]...

Suppose that the Index Model for the excess returns of stocks A and B is estimated...

Suppose that the Index Model for the excess returns of stocks A and B is estimated with the following results: RA = 0.01 + 0.80 * Rm + eA RB = -0.02 + 1.5 * Rm + eB Stdev(Rm)=0.25 Stdev(eA)=0.40 Stdev(eB)=0.20 What is the Standard Deviation of each Stock. What is the Covariance between Stock A and Stock B. What is the Correlation between Stock A and Stock B

Suppose that the index model for stocks A and B is estimated from excess returns with...

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 5.0% + 1.30RM + eA RB = –2.0% + 1.6RM + eB σM = 20%; R-squareA = 0.20; R-squareB = 0.12 Break down the variance of each stock to the systematic and firm-specific components. (Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. Round your answers to 4 decimal places.)

Suppose that the index model for stocks A and B is estimated from excess returns with...

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.6% + 0.90RM + eA RB = –2.0% + 1.20RM + eB σM = 26%; R-squareA = 0.21; R-squareB = 0.12 Assume you create a portfolio Q, with investment proportions of 0.40 in a risky portfolio P, 0.35 in the market index, and 0.25 in T-bill. Portfolio P is composed of 70% Stock A and 30% Stock B. a....

Subjects