12) Stocks B, has returns of 5%, 15%, 30%, and 110%, over the
most recent four...
12) Stocks B, has returns of 5%, 15%, 30%, and 110%, over the
most recent four year period. What is the stock's standard
deviation of return over this time period?
A) 64.25%
B) 56.75%
C) 47.78%
D) 32.05%
Solutions
Expert Solution
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Stocks A and B have expected returns of 8% and 10%, and standard
deviations of 12% and 18%, respectively. Calculate the expected
return and standard deviation of equally weighted portfolios of the
two stocks if the correlation between the two stocks is 0.5? Repeat
the calculation for correlation of 0 and -0:5. If you could set the
correlation between the two stocks, which of the three values would
you choose? Explain.
12. Given the following information about the returns of stocks
A, B, and C, what is the expected return of a portfolio invested
30% in stock A, 40% in stock B, and 30% in stock C?
State of economy
Probability
Stock A
Stock B
Stock C
Boom
0.19
0.36
0.21
0.39
Good
0.23
0.23
0.22
0.23
Poor
0.25
0.06
0.07
0.06
Bust
--
-0.14
-0.1
-0.21
Enter answer in percents.
For the stocks A and B you observe the following monthly returns
over the last three months:
Month
A
B
1
8.62%8.62%
1.80%1.80%
2
18.01%18.01%
7.04%7.04%
3
15.20%15.20%
10.91%10.91%
Compute the covariance and correlation between these two
stocks.(rounded to four decimal places)
Select one:
a. 0.00110.0011; 0.52670.5267
b. 0.00110.0011; 0.47350.4735
c. 0.00160.0016; 0.68870.6887
d. 0.00160.0016; 0.73000.7300
e. 0.00110.0011; 0.4994
The daily returns for a stock over a period of 110 days are
recorded, and the summary descriptive statistics are given as
follows:
Descriptive Statistics: return
Variable
N
N*
Mean
SE Mean
StDev
Minimum
Q1
Median
Q3
Maximum
Return
110
0
0.000983
.00296
.03103
-.19992
-.01393
.00322
.01591
.09771
a) Find a 95% confidence interval estimate for μ, where μ is the
population mean rate of return of the stock.
b) Test the hypothesis Ho:μ= 0 versus Ha:μ > 0...
The expected returns for Stocks A, B, C, D, and E are 7%, 10%,
12%, 25%, and 18% respectively. The corresponding standard
deviations for these stocks are 12%, 18%, 15%, 23%, and 15%
respectively. Based on their coefficients of variation, which of
the securities is least risky for an investor? Assume all investors
are risk-averse and the investments will be held in isolation.
a. E
b. B
c. D
d. C
e. A
12. A mutual fund has earned an annual average return of 15%
over the last 5 years. During that time, the average risk-free rate
was 2% and the average market return was 12% per year. The
correlation coefficient between the mutual fund’s and market’s
returns was 0.7. The standard deviation of returns was 30% for the
mutual fund and 22% for the market. What was the fund’s CAPM
alpha?
Stuck on this. Any help would be greatly appreciated.
The index model has been estimated for the returns of stocks A
and B, denoted by R_A and R_B, on the return on the market denoted
by R_M, with the following results:
R_A = 0.01 + 0.8R_M + e_A.
R_B = 0.02 + 1.2R_M + e_B.
The standard deviation of market returns is 0.2; the idiosyncratic
risk (standard deviation of e_A) of stock A is 0.10; and that for
stock B is 0.20.
The standard deviation for stock A is
Consider the following returns for two investments, A and B,
over the past four years:
Investment 1:
9%
10%
-7%
15%
Investment 2:
7%
9%
-16%
14%
b-1. Calculate the standard deviation for each
investment. (Round your answers to 2
decimal places.)
Investment 1:
Investment 2:
c-1. Given a risk-free rate of 1.2%, calculate
the Sharpe ratio for each investment. (Round your answers
to 2 decimal places.)
Investment 1:
Investment 2:
Consider the following information for three stocks, Stocks A,
B, and C. The returns on the three stocks are positively
correlated, but they are not perfectly correlated. (That is, each
of the correlation coefficients is between 0 and 1.)
Stock
Expected Return
Standard Deviation
Beta
A
7.94
16
0.7
B
9.62
16
1.1
C
11.72
16
1.6
Fund P has one-third of its funds invested in each of the three
stocks. The risk-free rate is 5%, and the market is...