Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession HPR (including Probability Ending Price dividends) 0.26 $ 140 55.0% 110 21.0 80 -16.0 Mean Standard deviation 0.25 0.49 Use the equations E (r) = Ep (s) r(s) and o² = Ep (s) [r(s) - E(r)]² to compute the mean and standard deviation of the HPR on stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. % %

Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal growth Recession HPR (including Probability Ending Price dividends) 0.26 $ 140 55.0% 110 21.0 80 -16.0 Mean Standard deviation 0.25 0.49 Use the equations E (r) = Ep (s) r(s) and o² = Ep (s) [r(s) - E(r)]² to compute the mean and standard deviation of the HPR on stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. % %

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 6P: The market and Stock J have the following probability distributions: a. Calculate the expected rates...

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Consider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 0.03 + 0.7 RM + eA RB = -0.02+ 1.2 RM + eB σM =0.20; R-square A = 0.25 R-square B = 0.20 What is the standard deviation of A & B, respectively? Group of answer choices 0.54, 0.28 0.28, 0.54 0.45, 0.50 0.50, 0.45
Suppose that the index model for stocks A and B is estimated from excess returns with the following results:RA = 3% + .7RM + eARB = −2% + 1.2RM + eBσM = 20%; R-squareA = .20; R-squareB = .12What is the covariance between each stock and the market index?
Suppose your expectations regarding the stock price are as follows: HPR (including dividends) State of the Market Boom Normal growth Recession Probability Ending Price 0.35 0.30 0.35 Mean Standard deviation Use the equations E (r) = Ep (s) r(s) and o² = Ep (s) [r(s) – E(r)]² to compute the mean and standard deviation of the HPR S S on stocks. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. do do $ 140 110 80 % 44.5% 14.0 -16.5 %
The index model has been estimated for stock A with the following results: RA = 0.01 + 1.2RM + eA. σM = 0.15; σ(eA) = 0.10. The standard deviation of the return for stock A is
The index model for stock A has been estimated with the following result: RA = 0.01 + 0.9RM + eA. If σM = 0.25 and R2A = 0.25, the standard deviation of return of stock A is:
Suppose your expectations regarding the stock price are as follows: State of the Market Probability Ending Price HPR (includingdividends) Boom 0.30 $ 140 53.5 % Normal growth 0.28 110 17.5 Recession 0.42 80 −12.0 Use the equations E(r)=Σsp(s)r(s)E(r)=Σsp(s)r(s) and σ2=Σsp(s) [r(s)−E(r)]2σ2=Σsp(s) [r(s)−E(r)]2 to compute the mean and standard deviation of the HPR on stocks. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
You run a regression for the Tesla stock return on a market index to estimate the SML equation and find the following Excel output: Multiple R R-Square Adjusted R-Square Standard Error Observations Intercept Market = 0.28 0.25 0.02 40.01 60 13.35 and 0.97 0.8 and 0.1 0.28 and 0.25 0.26 and 1.36 0.2 and 0.75 Coefficients Standard Error t-Stat p-Value 0.2 0.75 The resulting SML equation for Laternios is given by: Er Laternios] 13.35 0.26 0.80 0.97 1.36 0.10 + __ × (E[rM] - rf)
The index model for stocks A and B is estimated from excess return with the following results: RA = -0.01 +0.8RM RB = 0.04 + 1.1RM R-squared 4 = 0.15 R-squared B = 0.3 Market-index risk (oM) is 0.2
The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
A challenge we run into when forecasting future stock returns is that stock returns compound. So, when using historical averages to forecast the future, we need to average together the arithmetic and geometric average returns using Blume's Formula: R(T) = T GeoAvg + NT Arith Avg N-1 In this formula, N is the number of historical annual returns you are using to calculate your averages and T is the number of future annual returns you are forecasting. Suppose you gather the following prices for a stock in order to calculate the last 10 (N = 10) annual returns. The stock does not pay dividends. Time 0 1 Time 0 calculate the last 10 (N=10) annual returns. The stock does not pay dividends. 1 2 3 4 5 10 6 . 7 8 9 10 Price $23.16 $32.81 Price $23.16 $32.81 $33.63 $36.83 $41.95 $41.04 $33.83 $37.45 $30.56 $29.90 $47.93 Using Blume's formula, what is the expected return per year for the next 4 years (T = 4)? Enter your answer as a percentage, rounded to the nearest 0.0001. For example, for…
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