Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Stock A has a market beta of 1.5, and stock B has a market beta of 0.8. If the market realizes a return of 2%

Stock A has a market beta of 1.5, and stock B has a market beta of 0.8.

If the market realizes a return of 2% over a the last 5 days:

What is the expected return of stock A over the same period predicted by the single index model? If stock A instead realized a return of 2.5%, what is the alpha of stock A over that period?

If the market realizes a return of -1% over a certain period: What is the expected return of stock B over the same period predicted by the single index model ? If stock B instead realized a return of 1%, what is the alpha of stock B over that period?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Investment Science

Authors: David G. Luenberger

1st International Edition

0195391063, 9780195391060

More Books

Students also viewed these Finance questions

Question

x-3+1, x23 Let f(x) = -*+3, * Answered: 1 week ago

Answered: 1 week ago