Risk Item Intercept Beta R-square 0.035 1.36 0.298 298 11. (10) You have the following information from regression for Ajax Corp.: Value Intercept .035 Beta 1.36 R-square a. Based on the beta, is this stock aggressive or conservative? b. What percent of Ajax's risk is market risk and how much is unique risk? Did the stock perform better, worse or as expected (See alpha or Jensen's alpha)? d. If the risk-free rate is 2% and the return on the S&P 500 is 8%, use the CAPM to estimate the 1 return for Ajax. Risk-free rate Return on S&P 0.02 0.08 3 4 A) 15 A beta of 1 means the stock is in line with the market. (The market usually refers to the S&P 500 group of stocks.) A beta of less than 1 means market fluctuations affect this stock to a lesser degree such as utility stocks. A beta of more than 1 means that the stock is volatile such as technology stocks. Negative beta means that the stock moves in the opposite direction to the market so returns will be positive. (Gold) Zero beta has no relation to the market. Therefore, since beta is 1.36, Ajax Corporation is Aggressive 16 17 18 19 B) 20 21 The risk which cannot be eliminated from a portfolio regardless of how much one diversifies is known as market risk. The risk which can be avoided by diversifying is known as unique risk. Unique risk exists because of the perils which are peculiar to any one company. Ajax market risk percentage is Ajax unique risk is Jensen's alphaPortfolio Return-(Risk Free Rate + Portfolio Beta"(Market Return-Risk Free Rate) The stock performed better. nisl fronto Rota Return on the market-Risk free rate) Risk Item Intercept Beta R-square 0.035 1.36 0.298 298 11. (10) You have the following information from regression for Ajax Corp.: Value Intercept .035 Beta 1.36 R-square a. Based on the beta, is this stock aggressive or conservative? b. What percent of Ajax's risk is market risk and how much is unique risk? Did the stock perform better, worse or as expected (See alpha or Jensen's alpha)? d. If the risk-free rate is 2% and the return on the S&P 500 is 8%, use the CAPM to estimate the 1 return for Ajax. Risk-free rate Return on S&P 0.02 0.08 3 4 A) 15 A beta of 1 means the stock is in line with the market. (The market usually refers to the S&P 500 group of stocks.) A beta of less than 1 means market fluctuations affect this stock to a lesser degree such as utility stocks. A beta of more than 1 means that the stock is volatile such as technology stocks. Negative beta means that the stock moves in the opposite direction to the market so returns will be positive. (Gold) Zero beta has no relation to the market. Therefore, since beta is 1.36, Ajax Corporation is Aggressive 16 17 18 19 B) 20 21 The risk which cannot be eliminated from a portfolio regardless of how much one diversifies is known as market risk. The risk which can be avoided by diversifying is known as unique risk. Unique risk exists because of the perils which are peculiar to any one company. Ajax market risk percentage is Ajax unique risk is Jensen's alphaPortfolio Return-(Risk Free Rate + Portfolio Beta"(Market Return-Risk Free Rate) The stock performed better. nisl fronto Rota Return on the market-Risk free rate)
