Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.

Get a Professional Answer

Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.

100% Satisfaction Guarantee

Rate the answer you receive.

Ask linda_us Your Own Question

linda_us, Master's Degree

Category: Multiple Problems

Satisfied Customers: 1212

Experience: Business Analyst and Solution Consultant with over 9 years of experience.

Type Your Multiple Problems Question Here...

linda_us is online now

Finance

Customer Question

This is due on september 5th at 1pm eastern time

Q1: Index Models:

Download 61 months (December 2007 to December 2012) of monthly data for the S&P 500 index (symbol = ^GSPC). Download 61 months (December 2007 to December 2012) of Apple Inc. data and 61 months (December 2007 to December 2012) of Exxon Mobil Corporation data. Download 60 months (January 2008 to December 2012) of the 13 week T-bill rate (symbol = ^IRX). Be sure to use end-of-month data! Construct the following on a spreadsheet:

1. Calculate 60 months of returns for the S&P 500 index, Apple and Exxon. Use January 2008 to December 2012. Note this means you need price data for December 2007. On the answer sheet report the average monthly returns for the S&P 500 index, Apple and Exxon, as well as the average monthly risk-free rate.

2. Calculate excess returns for the S&P 500 index, Apple and Exxon. Note you must divide the annualized risk-free rate (^IRX) by 1200 to approximate the monthly rate in in decimal form. On the answer sheet report the average monthly excess returns for the S&P 500 index, Apple and Exxon.

3. Regress excess Apple returns on the excess S&P 500 index returns and report, on the answer sheet, α, β, the r-square and whether α and β are different from zero at the 5% level of significance. Briefly explain your inference.

4. Use equation 8.10 to decompose total risk for Apple into systematic risk and firm-specific risk. That is, calculate total risk, systematic risk and firm-specific risk for Apple.

5. Regress excess Exxon returns on the excess S&P 500 index returns and report, on the answer sheet, α, β, the r-square and whether α, β are different from zero at the 5% level of significance. Briefly explain your inference.

6. Use equation 8.10 to decompose total risk for Exxon into systematic risk and firm-specific risk. That is, calculate total risk, systematic risk and firm-specific risk for Exxon.

7. Use equation 8.10 to estimate the covariance and correlation of Apple and Exxon excess returns.

Q2: CAPM and APT:

1. The expected rate of return on the market portfolio is 9% and the risk–free rate of return is 3%. The standard deviation of the market portfolio is 22%. What is the representative investor’s average degree of risk aversion?

2. Stock A has a beta of 1.25 and a standard deviation of return of 32%. Stock B has a beta of 1.95 and a standard deviation of return of 40%. Assume that you form a portfolio that is 60% invested in Stock A and 40% invested in Stock B. Using the information in question 1, according to CAPM, what is the expected rate of return on your portfolio?

3. Using the information in questions 1 and 2, what is your best estimate of the correlation between stocks A and B?

4. Your forecasting model projects an expected return of 10% for Stock A and an expected return of 17% for Stock B. Using the information in questions 1 and 2 and your forecasted expected returns, what is your best estimate of the alpha of your portfolio when using CAPM to determine a fair level of expected return?

5. A different analyst uses a two–factor APT model to evaluate expected returns and risk. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 4%, respectively, while the risk–free rate of return remains at 3%. According to this APT analyst, your portfolio formed in question 2 has a beta on factor 1 of 1.7 and a beta on factor 2 of 2.5. According to APT, what is the expected return on your portfolio if no arbitrage opportunities exist?

6. Now assume that your forecasting model of question 4 accurately projects the expected return of Stocks A and B and therefore your portfolio, and that the APT model of question 5 describes the fair rate of return for your portfolio. Do any arbitrage opportunities exist? If yes, would you invest long or short in your portfolio constructed in question 2?

The deadline is September 5th at 5pm The equation is in the book:Investments - 9.Edition - 2011 Bodie, Zvi; Kane, Alex; Marcus, Alan J. McGraw-Hill ISBN: 9780073530703 chapter 8 (formula 8.1) I will only have access to the book tonight!

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.

JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.

Web sites like justanswer.com/legal ...leave nothing to chance.

Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.

Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.

I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.GPHesperia, CA

I couldn't be more satisfied! This is the site I will always come to when I need a second opinion.JustinKernersville, NC

Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. EstherWoodstock, NY

Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know. RobinElkton, Maryland

He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here.DianeDallas, TX

Meet The Experts:

linda_us

Master's Degree

Satisfied Customers:

1051

Business Analyst and Solution Consultant with over 9 years of experience.