1) a) b) Assignment must be uploaded to Canvas as a pdf file or MS Word....

 

Transcribed Image Text:

1) a) b) Assignment must be uploaded to Canvas as a pdf file or MS Word. It is ok to scan a hand-written document, but scan to pdf only (no jpeg or camera photo, etc.) Also, scan must be a single file (no multiple documents or files). An analyst estimates the following CAPM Model for ECN Inc. [Enter % as whole number, i.e. 10% is 10]. (RECN-R)=2+1.55(Rm - Rr) Suppose the market premium is expected to be 12% for the next year. If ECN Inc. has a current return of 20% and the risk-free rate is 1%, is this stock over- or under-valued. Assume the estimated model is true. A different analyst believes that macroeconomic factors, particularly monetary policy matters. To capture that she includes the federal funds rate (FFR) in her CAPM-based model. She estimates the following. [Enter % as whole number, i.e. 10% is 10]. (RECN-R)=1.5+1.40(Rm - Ry) - 0.25(FFR) Using the same information from part a) and the fact that the federal funds rate is expected to be 1%, is ECN Inc. over- or under-valued? c) Based on the model estimated in part b) would news that the Federal Reserve is conducting open market purchases like be good or bad for shareholders of ECN Inc? Briefly explain. d) 2) Based on the model estimated b), briefly explain whether you think shares of ECN Inc. would be complements or substitutes for Treasury (US government) bonds. Suppose the following represents daily share price for XYZ Inc. Day Price ($) 1 2.00 2 XYZ Inc. 3 4 5 6 5.00 1.00 6.00 5.00 8.00 Calculate a 2-day moving average of these prices (the first number you have will be for day 2). Calculate a 3-day moving average of these returns (the first number you have will be for day 3). Suppose you wanted to use the 2-day and 3-day moving average for momentum trading. Is there a buy or sell signal on days 3,4, 5, or 6? Briefly explain. c) d) The following are the standard deviations for days 3-6. 1) a) b) Assignment must be uploaded to Canvas as a pdf file or MS Word. It is ok to scan a hand-written document, but scan to pdf only (no jpeg or camera photo, etc.) Also, scan must be a single file (no multiple documents or files). An analyst estimates the following CAPM Model for ECN Inc. [Enter % as whole number, i.e. 10% is 10]. (RECN-R)=2+1.55(Rm - Rr) Suppose the market premium is expected to be 12% for the next year. If ECN Inc. has a current return of 20% and the risk-free rate is 1%, is this stock over- or under-valued. Assume the estimated model is true. A different analyst believes that macroeconomic factors, particularly monetary policy matters. To capture that she includes the federal funds rate (FFR) in her CAPM-based model. She estimates the following. [Enter % as whole number, i.e. 10% is 10]. (RECN-R)=1.5+1.40(Rm - Ry) - 0.25(FFR) Using the same information from part a) and the fact that the federal funds rate is expected to be 1%, is ECN Inc. over- or under-valued? c) Based on the model estimated in part b) would news that the Federal Reserve is conducting open market purchases like be good or bad for shareholders of ECN Inc? Briefly explain. d) 2) Based on the model estimated b), briefly explain whether you think shares of ECN Inc. would be complements or substitutes for Treasury (US government) bonds. Suppose the following represents daily share price for XYZ Inc. Day Price ($) 1 2.00 2 XYZ Inc. 3 4 5 6 5.00 1.00 6.00 5.00 8.00 Calculate a 2-day moving average of these prices (the first number you have will be for day 2). Calculate a 3-day moving average of these returns (the first number you have will be for day 3). Suppose you wanted to use the 2-day and 3-day moving average for momentum trading. Is there a buy or sell signal on days 3,4, 5, or 6? Briefly explain. c) d) The following are the standard deviations for days 3-6.

Answer rating: 100% (QA)

Here are the responses to the assignment questions 1a The CAPM model estimated for ECN Inc is RECNR2 ... View the full answer