Consider the following single index specification: R = a + RM + ei. Where R,...
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Consider the following single index specification: R¡ = a¡ + ß¡ RM + ei. Where R, is the return on security i (X or Y), RM is the return on index M (a broad market index) and e; is a zero-mean white noise random variable not correlated with anything. Assume that the single index specification correctly describes returns of all securities and the risk-free rate is constant at 4%. Furthermore, you have the following descriptive statistics for returns of Stock X, Y, and index M. Stock X Stock Y Index M Expected return Return Standard Deviation 30% 15% 20% 13% 9% 10% a. Calculate Jensen's alpha of Stock Y. Bi 1.5 0.5 1 Consider the following single index specification: R¡ = a¡ + ß¡ RM + ei. Where R, is the return on security i (X or Y), RM is the return on index M (a broad market index) and e; is a zero-mean white noise random variable not correlated with anything. Assume that the single index specification correctly describes returns of all securities and the risk-free rate is constant at 4%. Furthermore, you have the following descriptive statistics for returns of Stock X, Y, and index M. Stock X Stock Y Index M Expected return Return Standard Deviation 30% 15% 20% 13% 9% 10% a. Calculate Jensen's alpha of Stock Y. Bi 1.5 0.5 1
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Jensens alpha is a measure of riskadjusted performance that ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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