{"id":11886,"date":"2021-10-28T08:57:43","date_gmt":"2021-10-28T08:57:43","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/fin550-556-6-the-following-are-the-historic-returns-for-the-chelle\/"},"modified":"2021-10-28T08:57:43","modified_gmt":"2021-10-28T08:57:43","slug":"fin550-556-6-the-following-are-the-historic-returns-for-the-chelle","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/fin550-556-6-the-following-are-the-historic-returns-for-the-chelle\/","title":{"rendered":"Fin550 556 6. the following are the historic returns for the chelle"},"content":{"rendered":"
\n

\u00a0\u00a0<\/p>\n

Fin550 556<\/p>\n

6. The following are the historic returns for the Chelle Computer Company:<\/p>\n

Year Chelle Computer General Index<\/p>\n

1 37 15<\/p>\n

2 9 13<\/p>\n

3 -11 14<\/p>\n

4 8 -9<\/p>\n

5 11 12<\/p>\n

6 4 9<\/p>\n

Based on this information, compute the following:<\/p>\n

a. The correlation coefficient between Chelle Computer and the General Index.<\/p>\n

b. The standard deviation for the company and the index.<\/p>\n

c. The beta for the Chelle Computer Company.<\/p>\n

8. As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U):<\/p>\n

Forcasted Return \u00a0CAPM Beta<\/p>\n

Fund T 9.0% 1.20<\/p>\n

Fund U 10.0 .80<\/p>\n

a.If the risk-free rate is 3.9 percent and the expected market risk premium (i.e., E<\/em>(R<\/em>M) \u2212 RFR<\/em>) is 6.1 percent, calculate the expected return for each mutual fund according to the CAPM.<\/p>\n

b.Using the estimated expected returns from Part a along with your own return forecasts, demonstrate whether Fund T and Fund U are currently priced to fall directly on the security market line (SML), above the SML, or below the SML.<\/p>\n

c.According to your analysis, are Funds T and U overvalued, undervalued, or properly valued?<\/p>\n

10. Draw the security market line for each of the following conditions:<\/p>\n

a. (1) RFR = 0.08; RM(proxy) = 0.12<\/p>\n

(2) Rz = 0.06; RM(true) = 0.15<\/p>\n

b. Rader Tire has the following results for the last six periods. Calculate and compare the betas using each index.<\/p>\n

Rates of Return<\/p>\n

Period Rader Tire% Proxy Specific Index% True General Index%<\/p>\n

1 29 12 15<\/p>\n

2 12 10 13<\/p>\n

3 -12 -9 -8<\/p>\n

4 17 14 18<\/p>\n

5 20 25 28<\/p>\n

6 -5 -10 0<\/p>\n

c. If the current period return for the market is 12 percent and for Rader Tire it is 11 percent, are superior results being obtained for either index beta?<\/p>\n

3.<\/strong>You have been assigned the task of estimating the expected returns for three different stocks: QRS, TUV, and WXY. Your preliminary analysis has established the historical risk premiums associated with three risk factors that could potentially be included in your calculations: the excess return on a proxy for the market portfolio (MKT), and two variables capturing general macroeconomic exposures (MACRO1 and MACRO2). These values are: \u03bbMKT = 7.5%, \u03bbMACRO1 = \u22120.3%, and \u03bbMACRO2 = 0.6%. You have also estimated the following factor betas (i.e., loadings) for all three stocks with respect to each of these potential risk factors:<\/p>\n

<\/p>\n

a. Calculate expected returns for the three stocks using just the MKT risk factor. Assume a risk-free rate of 4.5%.<\/p>\n

b. Calculate the expected returns for the three stocks using all three risk factors and the same 4.5% risk-free rate.<\/p>\n

c. Discuss the differences between the expected return estimates from the single-factor model and those from the multifactor model. Which estimates are most likely to be more useful in practice?<\/p>\n

d. What sort of exposure might MACRO2 represent? Given the estimated factor betas, is it really reasonable to consider it a common (i.e., systematic) risk factor?<\/p>\n

5.<\/strong>Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the following relationship:<\/p>\n

a. If \u03bb1 = 4% and \u03bb2 = 2%, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $30 and will not pay a dividend in the next year.<\/p>\n

b. Suppose that you know that next year the prices for Stocks A, B, and C will actually be $31.50, $35.00, and $30.50. Create and demonstrate a riskless, arbitrage investment to take advantage of these mispriced securities. What is the profit from your investment? You may assume that you can use the proceeds from any necessary short sale.<\/p>\n

7.<\/strong>a. Using regression analysis, calculate the factor betas of each stock associated with each of the common risk factors. Which of these coefficients are statistically significant?<\/p>\n

b.How well does the factor model explain the variation in portfolio returns? On what basis can you make an evaluation of this nature?<\/p>\n

c.Suppose you are now told that the three factors in Exhibit 9.12<\/a> represent the risk exposures in the Fama-French characteristic-based model (i.e., excess market, SMB,<\/em> and HML<\/em>). Based on your regression results, which one of these factors is the most likely to be the market factor? Explain why.<\/p>\n

d.Suppose it is further revealed that Factor 3 is the HML<\/em> factor. Which of the two portfolios is most likely to be a growth-oriented fund and which is a value-oriented fund? Explain why.<\/p>\n

<\/p>\n

Each homework assignment is required to be submitted in a single Excel file with each problem calculated on a separate worksheet within that file, clearly labeled with the question number. All formulas are required to be linked in the respective function ribbons for the purpose of authenticating ca\u00a0<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

\u00a0\u00a0 Fin550 556 6. The following are the historic returns for the Chelle Computer Company: Year Chelle Computer General Index 1 37 15 2 9 13 3 -11 14 4 8 -9 5 11 12 6 4 9 Based on this information, compute the following: a. The correlation coefficient between Chelle Computer and the General […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31],"tags":[],"class_list":["post-11886","post","type-post","status-publish","format-standard","hentry","category-homework-help"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/11886","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=11886"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/11886\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=11886"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=11886"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=11886"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}