T-Bills Philips Pay-up Rubber-Made Market Index Mean 7.00% 16.90% 2.07% 19.60% 15.00% Variance 0.00% 5.50% 2.40% 3.60% 3.10% Standard deviation 0.00% 23.40% 15.60% 18.90% 17.70% coefficient of variation 0 0.32 1.18 0.18 0.21 Covariance with MP 0 0.04 -0.03 0.02 0.03 Beta 0 1.32 -0.88 0.74 1 CAPM return 7.00% 17.54% -0.02% 12.89% 15.00% Correleation with market index 0.9953 -0.9953 0.6894 1 Mean 7.00% 16.90% 2.07% 19.60% 15.00% Valuation Overvalued (CAPM Above Benchmark) Undervalued (CAPM Below Benchmark) Undervalued ( CAPM Below Benchmark) Fairly priced (Benchmark) Nature of stock Aggressive (Beta is above 1) Defensive (Beta is below 1) Defensive (Beta is above 1) Defensive (Beta is 1) C) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph
T-Bills Philips Pay-up Rubber-Made Market Index Mean 7.00% 16.90% 2.07% 19.60% 15.00% Variance 0.00% 5.50% 2.40% 3.60% 3.10% Standard deviation 0.00% 23.40% 15.60% 18.90% 17.70% coefficient of variation 0 0.32 1.18 0.18 0.21 Covariance with MP 0 0.04 -0.03 0.02 0.03 Beta 0 1.32 -0.88 0.74 1 CAPM return 7.00% 17.54% -0.02% 12.89% 15.00% Correleation with market index 0.9953 -0.9953 0.6894 1 Mean 7.00% 16.90% 2.07% 19.60% 15.00% Valuation Overvalued (CAPM Above Benchmark) Undervalued (CAPM Below Benchmark) Undervalued ( CAPM Below Benchmark) Fairly priced (Benchmark) Nature of stock Aggressive (Beta is above 1) Defensive (Beta is below 1) Defensive (Beta is above 1) Defensive (Beta is 1) C) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
| T-Bills | Philips | Pay-up | Rubber-Made | Market Index | ||
| Mean | 7.00% | 16.90% | 2.07% | 19.60% | 15.00% | |
| Variance | 0.00% | 5.50% | 2.40% | 3.60% | 3.10% | |
| Standard deviation | 0.00% | 23.40% | 15.60% | 18.90% | 17.70% | |
| coefficient of variation | 0 | 0.32 | 1.18 | 0.18 | 0.21 | |
| Covariance with MP | 0 | 0.04 | -0.03 | 0.02 | 0.03 | |
| Beta | 0 | 1.32 | -0.88 | 0.74 | 1 | |
| CAPM return | 7.00% | 17.54% | -0.02% | 12.89% | 15.00% | |
| Correleation with market index | 0.9953 | -0.9953 | 0.6894 | 1 | ||
| Mean | 7.00% | 16.90% | 2.07% | 19.60% | 15.00% | |
| Valuation | Overvalued (CAPM Above Benchmark) | Undervalued (CAPM Below Benchmark) | Undervalued ( CAPM Below Benchmark) | Fairly priced (Benchmark) | ||
| Nature of stock | Aggressive (Beta is above 1) | Defensive (Beta is below 1) | Defensive (Beta is above 1) | Defensive (Beta is 1) | ||
C) Indicate which investments will plot on, above and below the SML?
d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph
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