You run a two-factor index model for Atock A, where the two risk factors are MKTRF...
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You run a two-factor index model for Atock A, where the two risk factors are MKTRF and SMB. rf 2%, E (TMKTRF) = 8%, E(TSMB) = 5%, PA,MKTRF = 0.5, PASMB = 0.1 (a) Calculate the expected return of Stock A (b) If your independent estimate of E(₂) is 6.6%, is A overvalued or undervalued? (c) If in period t, the realized returns are TMKTRF,t = 10%, SMB,t = -5%, At = 6%, what is the idiosyncratic shock to Stock A at period t? You run a two-factor index model for Atock A, where the two risk factors are MKTRF and SMB. rf 2%, E (TMKTRF) = 8%, E(TSMB) = 5%, PA,MKTRF = 0.5, PASMB = 0.1 (a) Calculate the expected return of Stock A (b) If your independent estimate of E(₂) is 6.6%, is A overvalued or undervalued? (c) If in period t, the realized returns are TMKTRF,t = 10%, SMB,t = -5%, At = 6%, what is the idiosyncratic shock to Stock A at period t?
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a To calculate the expected return of Stock A using the twofactor index model we use the formula ErA ... 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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