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BKM Ch 10 Answers w CFA

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1. You have regressed the monthly returns of stocks XXX and YYY on the historic market risk-premium (R M), the return on the dollar relative to the euro and found the following results;Stock;?;? M;? $/?;XXX;Estimate;0.002;0.54;0.68;P-value;0.83;0.00;0.00;YYY;Estimate;-0.064;1.11;-0.47;P-value;0.42;0.00;0.00;Assume both are U.S. based companies and neither company hedges it currency risk. Which company imports from Europe and which company exports to Europe?;No assume you compared this actively-managed portfolio to an index portfolio of small growth stocks (in which you can invest for free) and found the average excess monthly return equal to 0.30% and the Tracking error equal to 0.20%. Calculate the Information Ratio. What does the information ratio tell us?;Did this portfolio earn a risk-adjusted abnormal (or excess) return?;What is the equity ?style? of the portfolio?;2. You have regressed the monthly returns of an actively managed general equityportfolio on the historic market risk-premium (R M), the small stock premium (SMB) and the value stock premium (HML) and found the following results;The Realized return on the market = 7.00%;To what can the unexpected component of the realized stock return be attributed?;Realized return on wheat = -6.00%.;a. Now it is the end of the year. The realized return on the stock = 15.00%.;b. Calculate the expected return on the stock.;r f = 1.00%.;E(r M) = 10.00% E(r W) = 5.00%;? M = 1.50? Wheat = -0.25(Is this a farm-related stock or a baking company stock?);3. It is the beginning of the year and using the past data you have estimated the following;Now it is the end of the year and the realized return on the stock is 11.00%. The realized return on the market is 9.20% and the realized return on oil is -2.00%. To what can the unexpected component of the realized stock return be attributed?;4. It is the beginning of the year and using the past data you have estimated a stock?s market beta is 1.2 and its beta relative to the return on oil is -0.3. The expected return on the market over the next year is 8.5% and the expected return on oil is 3%. The risk-free rate is 0.50%.;Calculate the expected return on the stock.

 

Paper#75135 | Written in 18-Jul-2015

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