You estimated the single index (market) model for stocks A and B with the following results:...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You estimated the single index (market) model for stocks A and B with the following results: Return on Stock A: RA = 0.04 +0.5RM + eA Return on Stock B: RB = -0.02 +1.5R + eB where RM is return on the single index and A and B are error terms which are not correlated with anything and have zero means. In addition, the following statistics are known for the risk-free rate, RM, and the error terms: Risk-free rate Single index return, RM Error term for Stock A return, eA Error term for Stock B return, eB Mean 4% 20% 0% 0% Standard Deviation 0% 32% 12% 36% a) The CAPM Betas of the two stocks are of the same value as their estimated slope coefficients on RM in the above single index model. Based on the single index specifications and information given, assess what is the Treynor ratio for an equal- weighted portfolio formed by stocks A and B. You estimated the single index (market) model for stocks A and B with the following results: Return on Stock A: RA = 0.04 +0.5RM + eA Return on Stock B: RB = -0.02 +1.5R + eB where RM is return on the single index and A and B are error terms which are not correlated with anything and have zero means. In addition, the following statistics are known for the risk-free rate, RM, and the error terms: Risk-free rate Single index return, RM Error term for Stock A return, eA Error term for Stock B return, eB Mean 4% 20% 0% 0% Standard Deviation 0% 32% 12% 36% a) The CAPM Betas of the two stocks are of the same value as their estimated slope coefficients on RM in the above single index model. Based on the single index specifications and information given, assess what is the Treynor ratio for an equal- weighted portfolio formed by stocks A and B.
Expert Answer:
Answer rating: 100% (QA)
The Treynor ratio is calculated as the excess return of the portfolio over the riskfree rate divided ... View the full answer
Related Book For
ISE Investments
ISBN: 9781260571158
12th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
Posted Date:
Students also viewed these finance questions
-
https://www.courts.ca.gov/selfhelp-criminallaw.htm?rdeLocaleAttr= 1. What is the primary purpose of this website and what information can I obtain here? 2. Be able to answer the following question:...
-
Marbury Sportswear's offices of incorporation authorize the company to issue 0000 $5 prefered shares and 450.000 common shares Marbury sued 1,200 preferred shares at $110 per share it issued 130,000...
-
Consider the function f(x) = 3-8x2 on the interval [-4, 5]. Find the average or mean slope of the function on this interval, i.e. f(5)-f(-4)= 5-(-4) By the Mean Value Theorem, we know there exists a...
-
C.J mensah started a new park business called Jane park on February 1, 2016. The following selected events and transaction occurs during February. February 1. Invested $40,000 by issuing a common...
-
Broken DNA can be repaired by DNA ligase (single-strand breaks) or nonhomologous end-joining (double-strand breaks). Explain why the cell's set of repair enzymes also includes tyrosyl-DNA...
-
You would like to determine the pressure drop in a slurry pipeline. To do this, you need to know the rheological properties of the slurry. To evaluate these properties, you test the slurry by pumping...
-
Prepare a consolidated balance sheet from the following balance sheets of Pop Ltd and Son Ltd which were drawn up immediately after Pop Ltd had acquired the share capital of Son Ltd. Pop Balance...
-
From the work sheet, prepare the following: 1. Closing entries for Gimbel's Gifts and Gadgets in a general journal. 2. A post-closing trialbalance. Gimbel's Gifts and Gadgets Work Sheet For Year...
-
The most recent financial statements for Zoso, Inc., are shown here (assuming no income taxes): Income Statement Balance Sheet Sales $5,100 Assets $14,900 Debt $11,000 Costs 3,390 Equity 3,900 Net...
-
When Pablo Gonzalez died unmarried in 2018, he left an estate valued at $7,850,000. His trust directed distribution as follows: $20,000 to local hospital, $160,000 to his alma mater, and the...
-
A resident of Australia for tax purposes received a fully franked dividend of $140,000 during the 2021/2022 income year. Calculate the tax liability (disregarding any tax offsets and levies).
-
Find y y=4-loggx
-
What is the value of an ordinary share which paid a dividend this year of $2.00 and has an expected growth of8% a year, in perpetuity. The required rate of return is 16%;
-
The role of negative amortization needs to be considered for what type of risk?
-
Steamroller Company sells two products and B. Steamroller predicts that it will sell 7,400 units of J and 6,500 units of B in the next period. The unit contribution margins are $2.9 $6.40 for...
-
You have just landed at Melbourne with 30,000 Chinese Yuan (CNY) for a 2-week holiday. You need to exchange your Chinese Yuan into Australian Dollar (AUD) to use during your holiday. The exchange...
-
Include at least two references you used for this analysis, including this news article, the class textbook and/or Internet sources. Please follow APA guidelines when formatting your references. For...
-
[a] Two foam blocks, each with a charge of 19 micro coulombs (1 C = 10-6 C), are both held in place 19 cm apart in the east-west direction. A foam ball with a charge 49 C is placed 55 cm north of the...
-
On the Internet, find sites describing examples of the bill-and-hold technique.
-
Search the Internet for Thomas M. Coughlin, former Wal-Mart vice-chairman. What was he accused of in April 2005? What was his annual compensation in 2004?
-
Search the Internet for the improper transactions incurred by the A.I.G. What happened to the chairman Maurice R. Greenberg?
Study smarter with the SolutionInn App