Question
In: Finance
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those...
|
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: |
| Factor | β | Expected Value | Actual Value | ||||
| GDP | .0007781 | $14,131 | $14,110 | ||||
| Inflation | −.98 | 3.2% | 3.0% | ||||
| Interest rates | −.40 | 5.8% | 5.6% | ||||
| a. |
What is the systematic risk of the stock return? (A negative answer should be indicated by a negative sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
|
| b. |
Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.1 percent. If the expected return on the stock is 13.2 percent, what is the total return on this stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| Total return of the stock | % |
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those...
Suppose a three-factor model is appropriate to describe the
returns of a stock. Information about those three factors is
presented in the following chart:
Factor
β
Expected Value
Actual Value
GDP
.0008021
$14,161
$14,142
Inflation
−.85
3.4%
3.2%
Interest rates
−.42
6.2%
6.0%
a.
What is the systematic risk of the stock return? (A
negative answer should be indicated by a negative sign. Do not
round intermediate calculations and enter your answer as a percent
rounded...
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those...
Suppose a three-factor model is appropriate to describe the
returns of a stock. Information about those three factors is
presented in the following chart:
Factor
β
Expected Value
Actual Value
GDP
.0007421
$14,086
$14,062
Inflation
−.95
2.9%
2.7%
Interest rates
−.37
5.2%
5.0%
a.
What is the systematic risk of the stock return? (A
negative answer should be indicated by a negative sign. Do not
round intermediate calculations and enter your answer as a percent
rounded...
Factor Models Suppose a factor model is appropriate to describe the returns on a stock. The...
Factor Models Suppose a factor model is appropriate to describe
the returns on a stock. The current expected return on the stock is
10.5 percent. Information about those factors is presented in the
following:
Factor
B
Expected Value
Actual Value
Growth in GNP
1.67
2.1%
2.6%
Inflation
-1.09
4.3
4.8
a. What is the systematic risk of the stock return?
b. The firm announced that its market share had unexpectedly
increased from 11 percent to 15 percent. Investors know from...
Suppose stock returns can be explained by the following three-factor model: Ri = RF + β1F1...
Suppose stock returns can be explained by the following
three-factor model:
Ri = RF + β1F1
+ β2F2 − β3F3
Assume there is no firm-specific risk. The information for each
stock is presented here:
β1
β2
β3
Stock A
1.18
.40
.06
Stock B
.80
1.35
−.25
Stock C
.71
−.17
1.24
The risk premiums for the factors are 6.6 percent, 4.9 percent, and
5.6 percent, respectively. You create a portfolio with 25 percent
invested in Stock A, 25 percent...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta...
Consider the following multifactor (APT) model of security
returns for a particular stock.
Factor
Factor Beta
Factor Risk Premium
Inflation
1.1
8
%
Industrial production
0.6
9
Oil prices
0.3
7
a. If T-bills currently offer a 7% yield, find the
expected rate of return on this stock if the market views the stock
as fairly priced. (Do not round intermediate calculations.
Round your answer to 1 decimal place.)
b. Suppose that the market expects the values for
the three...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta...
Consider the following
multifactor (APT) model of security returns for a particular
stock.
Factor
Factor
Beta
Factor Risk
Premium
Inflation
0.8
6%
Industrial
production
0.4
7
Oil prices
0.1
3
a. If
T-bills currently offer a 3% yield, find the expected rate of
return on this stock if the market views the stock as fairly
priced. (Do not round intermediate calculations. Round your
answer to 1 decimal place.)
Expected rate of
return %
?
b.
Suppose that the...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta...
Consider the following multifactor (APT) model of security
returns for a particular stock.
Factor
Factor Beta
Factor Risk Premium
Inflation
1.0
10%
Industrial production
0.4
12%
Oil prices
0.2
8%
a. If T-bills currently offer a 5% yield, find
the expected rate of return on this stock if the market views the
stock as fairly priced. (Do not round intermediate
calculations. Round your answer to 1 decimal place.)
Expected rate of return = ?%
b. Suppose that the market expects...
A researcher has determined that a two-factor model is appropriate to determine the return on a stock.
A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP and an interest rate. GNP is expected to grow by 5.2 percent and the interest rate is expected to be 4.7 percent. A stock has a beta of 2.9 on the percentage change in GNP and a beta of -75 on the interest rate. If the expected rate of return on the stock is 10 percent,...
You model the stock returns using the Fama-French 3-factor model. The expected return for the market...
You model the stock returns using the Fama-French 3-factor
model.
The expected return for the market is 14%, the risk-free rate is
2%, the expected return on the Small-Minus-Big (SMB) portfolio is
2%, and the expected return on the High-Minus-Low (HML) portfolio
is 1.8%.
Canopy Growth Corporation (CGC) as a beta with respect to the
market of 0.9, a beta with respect the SMB portfolio of -0.14, and
a beta with respect to the HML portfolio of 0.1.
According the...
You model the stock returns using the Fama-French 3-factor model. The expected return for the market...
You model the stock returns using the Fama-French 3-factor
model.
The expected return for the market is 14%, the risk-free rate is
2%, the expected return on the Small-Minus-Big (SMB) portfolio is
1%, and the expected return on the High-Minus-Low (HML) portfolio
is 1.3%.
Canopy Growth Corporation (CGC) as a beta with respect to the
market of 0.9, a beta with respect the SMB portfolio of -0.12, and
a beta with respect to the HML portfolio of 0.11.
According the...
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