To analyze a stock, you have estimated the single-index model: ri - rf = alpha +...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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.
Expert Answer:
Answer rating: 100% (QA)
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
Related Book For
Intermediate Financial Management
ISBN: 978-1285850030
12th edition
Authors: Eugene F. Brigham, Phillip R. Daves
Posted Date:
Students also viewed these finance questions
-
1. Consider the integral function cos(t)dt, 0 x 2 (a) [3 marks] Use Maple to fill in the following table of values. Range = = F(x) = 2 O (b) [3 marks] What is the range of F(x) on the indicated...
-
Bhavik bought 3 liters of milk and 5 loaves of bread for a total of $11. A month later, he bought 4 liters of milk and 4 loaves of bread at the same prices, for a total of $10. How much does a liter...
-
Consider the pistoncylinder arrangement shown in the sketch below. The gas forces on each side of the piston, assuming there are no frictional forces at the pistoncylinder interface, balance the...
-
After a federal court judge had found Apple guilty of conspiring with book publishers to raise e-book prices, the Department of Justice recommended that the judge order Apple not to sign agency...
-
Following is a portion of the computer output for a regression analysis relating y = maintenance expense (dollars per month) to x = usage (hours per week) of a particular brand of computer terminal....
-
You just received an unexpected bonus at work of \($10,000.\) While you plan on using a bit of it to celebrate by purchasing all the accounting books you ever dreamed of, how much should you deposit...
-
Firemans Fund commissioned an online survey of 1,154 wealthy homeowners to find out what they knew about their insurance coverage. (a) When asked whether they knew the replacement value of their...
-
What is the output of the following code? Enter your answer in the box below. public class CitiesInFrance public static void methodA () { } methodB(); System.out.println( "Bourdeaux"); public static...
-
f. If there were $800 of dividends declared but not yet received by Maloney Co's from their investments, what adjustment would need to be made to Maloney's revenue?
-
A random sample of 100 high school students was surveyed regarding their favorite subject. The following counts were obtained: Favorite Subject English Number of Students 25 Math 30 Science 30...
-
What are some of the incentives for airlines to continuously improve safety?
-
Provide examples illustrating how markets change from one structure to another when technology or other market conditions change.
-
Explain why the economic concept of self-interest is not the same thing as selfishness or greed.
-
Is it true that a monopoly firm will always make a profit? Explain why or why not.
-
Calculate BLF for the following airlines: 1 2 3 4 5 6 7 8 9 US Airlines, 2010 Airlines American Continental Delta United Airlines US Airways Southwest Airlines JetBlue Air Tran Frontier Yield CASM...
-
Cash flow from operations activities-indirect method An analysis of the 2015 financial statements of Portside Provisions reveals the following: (a) Accounts payable to suppliers of merchandise...
-
When the concentration of a strong acid is not substantially higher than 1.0 10-7 M, the ionization of water must be taken into account in the calculation of the solution's pH. (a) Derive an...
-
Shapland Inc. has fixed operating costs of $500,000 and variable costs of $50 per unit. If it sells the product for $75 per unit, what is the break-even quantity?
-
a. The 2015 sales of Cumberland Industries were $455,000,000; operating costs (excluding depreciation) were equal to 85% of sales; net fixed assets were $67,000,000; depreciation amounted to 10% of...
-
Gardial GreenLights, a manufacturer of energy-efficient lighting solutions, has had such success with its new products that it is planning to substantially expand its manufacturing capacity with a...
-
Crane l uses 10 kJ of energy to lift a 50 kg box to the roof of a building. Crane 2 uses 20 kl to lift a 100 kg box the same distance. Which crane is more efficient? A. Crane 1 B. Crane 2 C. Both...
-
A glassblower heats up a blob of glass in a furnace, increasing its temperature by \(1000^{\circ} \mathrm{C}\). By how many kelvins does its temperature increase?
-
Which of the following changes would allow your refrigerator to use less energy to run? (There may be more than one correct answer.) A. Increasing the temperature inside the refrigerator B....
Study smarter with the SolutionInn App