Questions from General Investment

Q: Why do we call alpha a “nonmarket” return premium?

Why do we call alpha a “nonmarket” return premium? Why are high-alpha stocks desirable investments for active portfolio managers? With all other parameters held fixed, what would happen to a portfolio...

Q: A portfolio management organization analyzes 60 stocks and constructs a mean-

A portfolio management organization analyzes 60 stocks and constructs a mean-variance efficient portfolio using only these 60 securities. a. How many estimates of expected returns, variances, and cova...

Q: The following are estimates for two stocks. / The

The following are estimates for two stocks. The market index has a standard deviation of 22% and the risk-free rate is 8%. a. What are the standard deviations of stocks A and B? b. Suppose that we wer...

Q: Consider the following two regression lines for stocks A and B in

Consider the following two regression lines for stocks A and B in the following figure. a. Which stock has higher firm-specific risk? b. Which stock has greater systematic (market) risk? c. Which stoc...

Q: Consider the two (excess return) index model regression results for

Consider the two (excess return) index model regression results for A and B: RA = 1% + 1.2RM R-square = .576 Residual standard deviation = 10.3% RB = −2% + .8RM R-square = .436 Residual standard devia...

Q: If the simple CAPM is valid, which of the following situations

If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.

Q: If the simple CAPM is valid, which of the following situations

If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.

Q: Wilson is now evaluating the expected performance of two common stocks,

Wilson is now evaluating the expected performance of two common stocks, Furhman Labs Inc. and Garten Testing Inc. He has gathered the following information: The risk-free rate is 5%. The expected retu...

Q: If the simple CAPM is valid, which of the following situations

If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.

Q: Assume that the risk-free rate of interest is 6%

Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If I...