Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market's average
Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6%, and the market's average return was 15%. Performance is measured using an index model regression on excess returns. Stock A 18+ 1.2 (FM - Ff) Index model regression estimates R-square Stock B 2% +0.8 (FM - If) 0.445 19.4% 25.5% 0.594 10.6% 21.9% Residual standard deviation, 0(e) Standard deviation of excess returns a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) Stock A Stock B i. Alpha % % ii. Information ratio iii. Sharpe ratio iv. Treynor measure % % b. Which stock is the best choice under the following circumstances? i. This is the only risky asset to be held by the investor. Stock A ii. This stock will be mixed with the rest of the investor's portfolio, currently composed solely of holdings in the market-index fund. Stock B iii. This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio. Stock B
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started