Which fund has a higher systematic risk

Assignment Help Financial Management
Reference no: EM131342114

You have collected 6 years of monthly data on return of funds ABC and XYZ as well as on S&P/TSX composite index and the government short-term bills (risk-free). You have run two (excess return) index-model regressions for the two bonds and the results are as follows:

for ABC

rp- rf= .017 +1.2( rM- rf) + 2.3( rM-rf)^2 R^2 =0.92

for XYZ

rp - rf= 0.11+1.6(rM- rf) + 1.0( rM-rf)^2 R^2=0.75

All regression coefficients are statistically significant at 1% confidence interval.

a. Which fund has a higher systematic risk? Why?

b. Which fund has a higher residual risk? Why?

c. Which fund has a higher abnormal return? Why?

d. The risk-free rate over the period was 5 percent, and the market’s average return was 15 percent. Standard deviation of excess return for ABC and XYZ are 20% and 25%. Calculate Sharpe and Treynor’s measure for each fund.

Reference no: EM131342114

Questions Cloud

Preferred stock-debt and market : You are given the following information concerning Parrothead Enterprises: Debt: 10,800 7.3 percent coupon bonds outstanding, with 22 years to maturity and a quoted price of 108.5. Market: An expected return of 10.2 percent, a risk-free rate of 5.15 ..
What is the net cost of call premium : Dairy Corp. has a $20 million bond obligation outstanding and a coupon rate of 8%. Dairy Corp. has the ability to buy back the debt at 7% above par and issue new debt at 6.5%, so it is considering refunding this bond. Assume the underwriting cost for..
What is the value of the combined firm : When a firm has cash flow problems, there are potential negative feedback effects. For example, the firm may need to cut capital expenditures and research and development activities that are necessary to remain competitive in its industry. What perce..
What is the npv of your investment : Waysafe Inc. consists of two grocery stores. The first store is fairly valued at $60M and the second store, valued at $50M, could be torn down and then the land could be sold for $75M. You announce your intention to purchase this firm using cash. Sha..
Which fund has a higher systematic risk : You have collected 6 years of monthly data on return of funds ABC and XYZ as well as on S&P/TSX composite index and the government short-term bills (risk-free). Which fund has a higher systematic risk? Why? Which fund has a higher residual risk? Why?..
Calculate strickler cash conversion cycle : The Wei Corporation expects next year's net income to be $15 million. The firm's debt ratio is currently 40%. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. Calculate Strickler’s cash co..
What measurement instruments will you use : RES-600-2500: What are the data collection strategies you will use in your research proposal? What measurement instruments will you use? What sampling methods will you use?
Is there agreement and a contract : Johnny and Sally are students at Nononline University. Sally often admires Johnny's iPod in the Business Law class that they take together. One Friday night she decides to send Johnny the following e-mail:
Find an article that focuses on effective professional : Your Professional Experience assignment is to find an article that focuses on effective professional communications published since 2015. You should insert a new row below the most recent entry (contact your instructor if you need assistance with ..

Reviews

Write a Review

 

Financial Management Questions & Answers

  What is the intrinsic value of portmans stock

Portman industries just paid a dividend of $2.40 per share. The company expects the coming year to be very profitable, and its dividend is expected to grow by 12.00% over the next year. After teh next year, though, Portman's dividend is expected to g..

  Calculate the impact of the exhibit on company profit

Infinity Designs, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects.  Calculate the impact of the exhibit on company profit.

  How much should the group borrow

The Omega Venture Group needs to borrow to Finance a project. Repayment of the loan involves payments of $5660 at the end of every six months for six years. No payments are to be made during the development period of two years. Interest is 9% compoun..

  Transactions are related to some creative tax planning

During your review of the sales accounts at 120340 Ontario Inc., you enquired of management about sales to customer account 23-524. The account accumulates sales to a related company. The customer is a related company pays more than market value for ..

  What is the stocks intrinsic value

What is the stock’s intrinsic value if g= 20% for 3 years before achieving long-term growth of 5%. Its required rate of return is 10%. Last dividend was $2. What is its terminal price?

  The size of a company operating exposure

What is the expected value of the investment in U.S. dollars? b) What is operational exposure? Discuss the factors that may influence the size of a company's operating exposure?

  Difference in payments

You buy a car today for $29,000. If you finance it with a 6% APR, 4 year loan, what is the difference in your payments if you agree to pay at the beginning of each month rather than at the end? Assume monthly compounding.

  Capital structure that consists-common stock-long-term debt

Clark Communications has a capital structure that consists of 70% common stock and 30% long-term debt. In order to calculate Clark's WACC, an analyst has accumulated the following information: The company currently has a 30-year bond issue outstandin..

  Future value-annuity versus annuity due

Future value: annuity versus annuity due. What's the future value of a 11%, 5-year ordinary annuity that pays $700 each year?  If this was an annuity due, what would its future value be?

  Prefere forward contract over futures contract

Give an example each of a situation where you would prefer a futures contract over or forward contract and conversely when you would prefere a forward contract over futures contract for hedging purposes. Give reasons.

  The beta associated with a risk free asset

The beta associated with a risk free asset ___.

  Required rate of return-what is beta coefficient

If a company's required rate of return is 22%, its average market return is 18%, and the interest yield on 10-year US Treasury Bonds is 4%, what is the company’s Beta coefficient?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd