3. The data below describe a three-stock financial market that satisfies the single-index model: Stock Beta Return Standard deviation Capitalization 3000 m.u A 1.2 10% 40% B 1940 m.u 0.2 2% 30% C 1360 m.u 1.7 17% 50% The standard deviation of the market index portfolio is 25%. a. What is the return of the market portfolio? b. What is the covariance between stock A and the market? c. Break down the variance of stock B into its systematic and firm-specific components

3. The data below describe a three-stock financial market that satisfies the single-index model: Stock Beta Return Standard deviation Capitalization 3000 m.u A 1.2 10% 40% B 1940 m.u 0.2 2% 30% C 1360 m.u 1.7 17% 50% The standard deviation of the market index portfolio is 25%. a. What is the return of the market portfolio? b. What is the covariance between stock A and the market? c. Break down the variance of stock B into its systematic and firm-specific components

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 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
1. Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Calculate the rates of return on the following indexes of the three stocks: A B с Po 90 50 100 a. A market-value-weighted index. b. An equally weighted index. Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200
6. The data below describe a three-stock financial market that satisfies the single-index model. The standard deviation of the market index portfolio is 25%. Stock Beta A 1.0 B 0.2 C 1.7 Capitalization $3,000 $1,940 $1,360 Mean Excess Return 10% 2% 17% a. What is the mean excess return of the index portfolio? b. What is the covariance between stock A and stock B? Standard Deviation 40% 30% 50% c. What is the covariance between stock B and the index? d. Break down the variance of stock B into its systematic and firm-specific components.
The data below describes a three-stock financial market that satisfies the single index model. Stock Capitalization Beta Mean Excess Return Standard Deviation A £3,000 1.0 10% 40% B £1,940 0.2 2% 30% C £1,360 1.7 17% 50% The standard deviation of the market index portfolio is 25%. What is the mean excess return of the index portfolio? What is the covariance between stock A and stock B? What is the covariance between stock B and the index? Break down the variance of stock B into its systematic and firm specific components.
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA= 3.2% + 1.10RM + eA RB = -1.4 % + 1.25RM + eB OM= 30%; R-squareд = 0.28; R-squareg = 0.12 What is the covariance between each stock and the market index? Note: Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Do not round your intermediate calculations. Round your answers to nearest whole number. Answer is complete but not entirely correct. Stock A Stock B Covariance 93 x 101 x
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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?
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