Question
In: Finance
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 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 (i.e., , , 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.
% - Plot the Security Market Line.
Select the correct graph.
The correct graph is -Select-ABCDItem 7 .
- Suppose you hold a large, well-diversified portfolio and are considering adding to that portfolio either Stock X or another stock, Stock Y, which has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns: = = 10.6% . Which stock should you choose ?
Solutions
Expert Solution
1. 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 = 0.51
2. 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, | 11.30% | 12.14% | ||
| Standard deviation, σ | 11.71% | 22.63% |
Assume that the situation during Years 1 to 7 is expected to prevail in the future (i.e., , , 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.
Risk free rate + Beta * (market Rate - Risk Free Rate) = Stock X Return
Risk free rate + 0.51 * (12.14% - Risk Free Rate) = 11.30%
0.49 * Risk free rate = 5.16%
Risk free rate = 10.44%
Plot the Security Market Line. Please share graph plotline so that i can answer
Suppose you hold a large, well-diversified portfolio and are considering adding to that portfolio either Stock X or another stock, Stock Y, which has the same beta as Stock X but a higher standard deviation of returns. Stocks X and Y have the same expected returns: = = 10.6% . Which stock should you choose ?
Select Stock X as it has lowest standard deviation
jeff jeffy answered 2 years agoRelated Solutions
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...
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: Year NYSE Stock X 1 -26.5% -14% 2...
You are given the following set of data:
Year
NYSE
Stock X
1
-26.5%
-14%
2
37.2
23.0
3
23.8
17.5
4
-7.2
2.0
5
6.6
8.1
6
20.5
19.4
7
30.6
18.2
a. Determine Stock X beta coefficient
b. determine the arithmetic average rates of return for stock X
and NYSE over the period given. Calculate the standard deviations
of returns for both X and NYSE
c. assume the situation during years 1 to 7 is expected to
prevail...
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...
REALIZED RATES OF RETURN Stocks A and B have the following historical returns: Year Stock A's...
REALIZED RATES OF RETURN
Stocks A and B have the following historical returns:
Year
Stock A's Returns, rA
Stock B's Returns, rB
2011
- 15.90%
- 16.50%
2012
33.50
21.20
2013
11.25
31.60
2014
- 6.00
- 8.80
2015
34.00
29.35
Calculate the average rate of return for stock A during the
period 2011 through 2015. Round your answer to two decimal
places.
%
Calculate the average rate of return for stock B during the period
2011 through 2015. Round...
Historical Realized Rates of Return Stocks A and B have the following historical returns: Year 2012...
Historical Realized Rates of Return
Stocks A and B have the following historical returns:
Year
2012
-19.60%
-14.00%
2013
20.00
30.00
2014
12.00
35.30
2015
-1.00
-10.20
2016
31.50
1.80
Calculate the average rate of return for each stock during the
5-year period. Round your answers to two decimal places.
Stock A
%
Stock B
%
Assume that someone held a portfolio consisting of 50% of Stock
A and 50% of Stock B. What would have been the realized rate...
Given the following historical returns, calculate the average return and the standard deviation Year Return 1...
Given the following historical returns, calculate the average
return and the standard deviation
Year
Return
1
12%
2
7%
3
10%
4
9%
You are given the returns for the following three stocks: Return Year Stock A Stock B...
You are given the returns for the following three stocks:
Return
Year
Stock A
Stock B
Stock C
1
8%
7%
-22%
2
8%
15%
35%
3
8%
3%
15%
4
8%
12%
3%
5
8%
3%
9%
Calculate the arithmetic return,
geometric return, and standard deviation for each stock. Do you
notice anything about the relationship between an asset’s
arithmetic return, standard deviation, and geometric return? Do you
think this relationship will always hold?
You are given the following data Year HPR of Stock A &nb
You are given the following data
Year
HPR of Stock A HPR of Stock B
HPR of Stock C
2017
12%
16%
12%
2018
14%
14%
14%
2019
16%
12%
16%
(1) Calculate expected rate of return for each stock
(2) Calculate standard deviation for each stock
(3) Calculate coefficient of variation for each stock. If you
will choose only one stock for investment, which stock will you
choose? Why?
(4) How much is correlation coefficient...
You've collected the following historical rates of return for stocks A and B: Year (t) rA,t...
You've collected the following historical rates of return for
stocks A and B:
Year (t)
rA,t
rB,t
2016
0.02
0.02
2015
0.08
0.05
2014
0.12
0.07
Part 1: What was the average annual return for stock A=
0.0733
Part 2: What was the average annual return for
stock B?= 0.04667
Part 3: What was the standard deviation of
returns for stock A?
Part 4: What was the standard deviation of returns for stock
B?
Can you solve Part 3 and...
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