To analyze a stock, you have estimated the single-index model: ri - rf = alpha +...

 

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To analyze a stock, you have estimated the single-index model: ri - rf = alpha + beta x (ri - rm) + ei, for the stock using a market index portfolio. The following table summarizes the model estimates: Regression Model Outputs for Stock Returns Standard Error t Stat p-value 0.0064 -1.4759 0.1453 0.1331 8.6491 0.0000 Coefficients Intercept -0.01 Market 1.20 The estimated residual variance of the stock excess return is 0.003. Further, the estimated variance of the market excess return is 0.002. A. (1 point) Determine whether the stock is an aggressive, defensive, or hedging stock (against systematic risk). Briefly explain why. B. (1 point) Determine whether the stock is located above, exactly on, or below the security market line (SML). Briefly explain why. C. (1 point) What is the model fit to the data? • Round your final answer to 3 or more decimal places. D. (1 point) Your client believes that the CAPM is not sufficient to explain the stock return. Do you agree with your client? What is the statistical evidence supporting your conclusion (with the 5% threshold for statistical significance)? Note: You must show your calculation steps briefly and clearly. To analyze a stock, you have estimated the single-index model: ri - rf = alpha + beta x (ri - rm) + ei, for the stock using a market index portfolio. The following table summarizes the model estimates: Regression Model Outputs for Stock Returns Standard Error t Stat p-value 0.0064 -1.4759 0.1453 0.1331 8.6491 0.0000 Coefficients Intercept -0.01 Market 1.20 The estimated residual variance of the stock excess return is 0.003. Further, the estimated variance of the market excess return is 0.002. A. (1 point) Determine whether the stock is an aggressive, defensive, or hedging stock (against systematic risk). Briefly explain why. B. (1 point) Determine whether the stock is located above, exactly on, or below the security market line (SML). Briefly explain why. C. (1 point) What is the model fit to the data? • Round your final answer to 3 or more decimal places. D. (1 point) Your client believes that the CAPM is not sufficient to explain the stock return. Do you agree with your client? What is the statistical evidence supporting your conclusion (with the 5% threshold for statistical significance)? Note: You must show your calculation steps briefly and clearly.

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ANSWER A To determine whether the stock is aggressive defensive or hedging against systematic risk we can analyze the beta coefficient In the singlein... View the full answer