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- Consider the below graph: E(R₁) E(RM) R₁ stocks M O stocks O What is the slope of the graph? If the historical return of an individual stock is lying the slope then the stock is undervalued or overvalued?A stock has a correlation with the market of 0.4. If the Sharpe ratio of the market portfolio is 0.7, what is the Sharpe ratio of the stock? (Hint: algebraically manipulate the SML equation.) 0.28 0.75C. 0.60D. 0.5530. Gamma: Look at the following chart. Based only on this information, which underlying equity is the riskiest? UNDERLYI NG: A B C D DELT GAMM A: .51 .54 .50 .54 A: .09 .10 .12 .08
- Q2) Consider the below graph: E(R₁) Ans: E(RM) R₁ stocks M O stocks O What is the slope of the graph? If the historical return of an individual stock is lying the slope then the stock is undervalued or overvalued? Ans: Slope of the Graph is called= Bchoose which one ? 3.Assume CAPM holds. What is the correlation between an efficient portfolio and the market portfolio?a.1b.-1c.0d.Not enough informationSuppose you have the following expectations about the market condition and the returns on Stocks X and Y. a) What are the expected returns for Stocks X and Y, E(rX) and E(rY)? b) What are the standard deviations of the returns for Stocks X and Y, σX and σY?
- 1) what is the expected return rate for stock A 2) what is the expected return rate for stock B 3) what is the standard deviation of returns for stock A 4) what is the standard deviation of returns for stock B.1. Calculate the Expected Return, Standard Deviation, and Beta for each stock. 2. Which stock has more systematic risk and which one has more unsystematic risk? Which stock is "riskier"? Explain your answer completely. Use excel to show formulas and calculationsAssume you know the expected and required rate of returns of the following stocks. Explainwhich of the following stocks are undervalued, overvalued and fairly valued. Stock Expected rate of return Required rate of return Evaluation X 10 12 ? Y 6 5 ? Z 4 4 ?
- Q3) Consider the below graph: E(R,) stocks M E(RM) stocks R What is the slope of the graph?1.How does adding stocks to a portfolio affect its volatility? 2. What is the efficient frontier? 3. What is the Sharpe ratio, and what does it measure?For a two-stock portfolio, what would be the preferred correlation coefficient between the two stocks? A. None of the options are correct. B. 0.00 C. –1.00 D. +0.50 E. +1.00
