Question
In: Finance
What is the covariance between each stock and the market index? Suppose that the index model...
What is the covariance between each stock and the market index?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA = 3.0% + 1.05RM + eA
RB = -1.2% + 1.2RM + eB
σM = 29%; R-squareA = 0.29; R-squareB = 0.14
What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.)
| Covariance | |
| Stock A | ? |
| Stock B | ? |
Solutions
jeff jeffy answered 5 months agoRelated Solutions
If the covariance between the excess return of stock A and the market excess return is...
If the covariance between the excess return of stock A and the
market excess return is 0.03, the standard deviation of the market
excess return is 0.15, and the standard deviation of the excess
return of stock A is 0.25, what is the idiosyncratic volatility?
What fraction of the total risk (variance) comes from the
systematic risk (variance)? Please show work.
If the covariance between the excess return of stock A and the market excess return is...
If the covariance between the excess return of stock A and the
market excess return is 0.03, the standard deviation of the market
excess return is 0.15, and the standard deviation of the excess
return of stock A is 0.25, what is the idiosyncratic volatility?
What fraction of the total risk (variance) comes from the
systematic risk (variance)?
Using a dividend discount model, what is the price for this stock? Stock covariance with the...
Using a dividend discount model, what is the price for this
stock? Stock covariance with the market= 0.5 Market variance = 0.25
Stock covariance with a second risk factor= 0.6 Variance of the
second factor= 0.3 Market Premium:3% Second factor risk premium=1%
Risk free rate =2 % Current earnings per share= $5, The ROE is
expected to shrink (decrease) at the rate 10% for first 5 years The
ROE is expected to grow at the rate 8% forever after the...
If the covariance of Stock A with Stock B is .20, then what is the covariance of Stock B with Stock A
1)If the covariance of Stock A with Stock B is .20, then
what is the covariance of Stock B with Stock A?2)Stock A is expected to return 14 percent in a normal economy and lose 21 percent in a recession. Stock B is expected to return 11 percent in a normal economy and 5 percent in a recession. The probability of the economy being normal is 75 percent with a 25 percent probability of a recession. What is the covariance...
1. Calculate the covariance between profits and market capitalization and what does the covariance indicate about...
1. Calculate the covariance between profits and market
capitalization and what does the covariance indicate about the
relationship between profits and market capitalization? (positive
or negative).
2. Calculate the correlation coefficient between profits and
market capitalization and what does this indicate about the
relationship between profits and market capitalization?
(strong/weak/non-linear relationship) .
Company
Profits ($ millions)
Market Capitalization ($ millions)
Alliant Techsystems
313.20
1891.90
Amazon.com
631.00
81458.60
AmerisourceBergen
706.60
10087.60
Avis Budget Group
-29.00
1175.80
Boeing
4018.00
55188.80
Cardinal Health...
According to Markowitz full-covariance model or the single-index model, Which model will you perfer ? Explain...
According to Markowitz full-covariance model or the single-index
model, Which model will you perfer ?
Explain the advantages and disadvantages of the model you
choose. (100words)
What is the difference between a Market Index ETF and a Market Index Mutual Fund?
What is the difference between a Market Index ETF and a Market
Index Mutual Fund?
Suppose it is January 31 now. There is a stock index. The stock index level now...
Suppose it is January 31 now. There is a stock index. The stock
index level now stands at 3000. There is a futures contract on this
stock index. The futures contract will mature in 5 months. The
stock index pays dividends with dividend yield at 3% for the coming
February and April and pays dividends with dividend yield of 4% for
the coming March, May and June. The dividend yield is measured with
continuously compounding. The risk-free rate with continuously...
The single-index model for stock i is Ri = 0.01+1.5RM + ei. The single-index model for...
The single-index model for stock i is Ri = 0.01+1.5RM + ei. The
single-index model for stock j is Rj = 0.02+0.8RM + ej. The
standard deviation of the market return is σM=0.2, the standard
deviation of ei is σei=0.3 and the standard deviation of ej is
σej=0.4. 1. Calculate the systematic risk, firm-specific risk, and
total risk of stock i.
The correlation coefficient between a stock's return and broad market index returns is 0.60. The stock...
The correlation coefficient between a stock's return and broad
market index returns is 0.60. The stock has a standard deviation of
40%. The market index has a standard deviation of 20%. Calculate
the beta coefficient.
Multiple Choice
0.3
0.6
0.9
1.2
1.5
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