Estimate of total variance of the excess returns on stock

Assignment Help Finance Basics
Reference no: EM132459799

Problem: The index model has been estimated for stocks A and B with the following results:

RA= -0.06 + 0.72RM+ eA

RB= 0.03 + 2.95RM+ eB

The standard deviation of the market index is 19%; the residual standard deviation of the error terms for stock A is 44%; the residual standard deviation of the error terms for stock B is 36%. What is the covariance between the returns on stocks A and B?

Using the data from problem 1, what is your best estimate of the total variance of the excess returns on stock A?  

Using the data from problem 1, what is your best estimate of the R-Squared in the regression of stock A on the market index M?

Reference no: EM132459799

Questions Cloud

What are the company equity multiplier-debt ratio : Carla Vista Company has a debt-to-equity ratio of 1.75, ROA of 10.0 percent, and total equity of $1,951,000. What are the company's equity multiplier
Create value for our shareholders : Will acceptance of Blackstone's offer create value for our shareholders?
What is the price of the stock today : The required return on this stock is 4.40 percent. What is the price of the stock today?
What is the term prototyping mean : What are some of the concerns or recommendations you have for the client and for your company leaders? Second, they want a system that is scalable
Estimate of total variance of the excess returns on stock : Using the data from problem 1, what is your best estimate of the total variance of the excess returns on stock A?
Why are businesses interested in bop markets : Why are businesses interested in BOP markets? What are some examples of products developed to profitable serve BOP markets?
Probability of an upward or downward stock : How to use a binomial random walk model of (offer) price dynamics with following: The probability of an upward or downward stock price movement was 50 percent.
How can a companys marketing organization ensure : How can a company's marketing organization ensure that able to identify newly emerging competitors in time to plan and execute an effective marketing strategy
What nominal annual rate does southern bank offer : What nominal annual rate does Southern Bank offer on its savings accounts?

Reviews

Write a Review

Finance Basics Questions & Answers

  Financial reporting and analysis

Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..

  A report on financial accounting

This report is specific for a core understanding for Financial Accounting and its relevant factors.

  Describe the types of financial ratios

Describe the types of financial ratios and other financial performance measures that are used during venture's successful life cycle.

  Differences between sole proprietorship and corporation

Briefly describe the major differences between a sole proprietorship and a corporation

  Prepare a cash budget statement

Calculate the expected value of the apartment in 20 years' time. What is the mortgage loan repayment at the beginning of each month

  What are the implied interest rates

What are the implied interest rates in Europe and the U.S.?

  State pricing theory and no-arbitrage pricing theory

State pricing theory and no-arbitrage pricing theory

  Small business administration

Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing.

  Effect of financial leverage

The Effect of Financial Leverage and working capital management

  Evaluate the basis for the payment to the lender

Evaluate the basis for the payment to the lender and basis for the payment to the company-counterparty.

  Importance of opps, ipps, mpfs and dmepos

Research and discuss the differences and importance of : OPPS, IPPS, MPFS and DMEPOS.

  Time value of money

Time Value of Money project

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