Idiosyncratic risk of the stock, Financial Accounting

(a)   The market considers Intel Corp (INTC) of all these stocks to be the riskiest since it has the highest beta of 1.497408. No, this measure of risk does not include the idiosyncratic risk of the stock. The idiosyncratic error will be included in the ε item in the market model of each stock.

(b)  Intel Corp (INTC) had price changes that were least closely related to the market, because it has the highest beta and hence more variation from the returns of S&P.

(c)   Apple (AAPL) has the highest expected returns. The average monthly return for this stock is 0.0234130, which is the highest of all stocks and this occurs even when the index returns are zero or flat.

(d)  With the given information and the given equation,

Expected return of HD = 0.0195538 + 1.089703*10% = 0.128524 = 12.8524%

Thus the expected return of HD is 12.8524% for the next month, with the given predictions (ignoring error term).

 

Posted Date: 3/8/2013 6:16:12 AM | Location : United States







Related Discussions:- Idiosyncratic risk of the stock, Assignment Help, Ask Question on Idiosyncratic risk of the stock, Get Answer, Expert's Help, Idiosyncratic risk of the stock Discussions

Write discussion on Idiosyncratic risk of the stock
Your posts are moderated
Related Questions
The following information for Cooper Enterprises is given below: December 31, 2013 Assets and obligations Plan assets (at fair value) $200,000 Accumulated benefit obligation 370,00

Uniform Capitalization Rules- These are a set of rules intended to be a single comprehensive set of rules to govern capitalization, or inclusion in INVENTORY of indirect and direc

How do you create an Excel document with several financial statements, all linked together with specific financial data?

Illustration-statement of Changes in Net Assets-pension fund (a) What meetings of creditors must be held and for what purpose in the course of a creditors’ voluntary winding up

Third Inc. wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 30% chance that the interest rate will be 4.5% and a 70% chance that th

INVESTMENT OF FUNDS TO PROVIDE FOR LEGACIES AND INTEREST ON LEGACIES (a) Where a general legacy is given for life, the sum bequeathed shall, at or before the end of a year afte

During construction of a building, the cost of interest on a construction loan should be charged to an expense account

Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company mon

Q. Calculation of the change in finance costs? Past ACCA examiners have occupied inconsistent approaches regarding the calculation of the change in finance costs due to settlem

CHARACTERISTICS OF PARTNERSHIP