There are two stocks. - Stock A: beta 1.5, return of 19% - Stock B: beta 1,
Question:
There are two stocks.
- Stock A: beta 1.5, return of 19%
- Stock B: beta 1, return of 16%
i) If the T-Bill rate was 6% and the market return was 14%, which stock had a higher risk-adjusted return according to CAPM?
ii) If the T-Bill rate was 3% and the market return was 15%, which stock had a higher risk-adjusted return according to CAPM?
iii) In which market environment (i or ii) is a long-short strategy that buys one stock and sells another stock more profitable?
+ This is all data I have and I have extra information here, but I need a explain.
- expected return rate of stock A is 18%, B is 14% in situation.
- expected return rate of stock A is 21%, B is 15% in situation.
Question 2:
Given the following information:
Economy Market Stock
Good 20% 30%
Poor -20% -30%
i) What is the beta of the stock?
ii) If a good economy has a 75% chance of occurring and a poor economy has a 25% chance of occurring, what is the stock's expected return assuming the T-Bill rate is 4%.
+ This is all data I have and I have extra information here, but I need a explain.
- bata = 1.5
- market return = 10%
- stock's expected return = 13%
Question 3:
Stocks that trade infrequently typically have a positive CAPM alpha.
i) Is this a sign of market inefficiency?
ii) If the positive alpha of these stocks is persistent, describe the type of investor who should overweight infrequently traded stocks.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill