# Homework | Financial markets homework help

CHAPTER 6

QUESTION 1

Compute the abnormal rates of return for the following stocks during period t (ignore differential systematic risk):

Stock                             Rit                            Rmt

B                                  11.5%                        4.0%

F                                   10.0                           8.5

T                                   14.0                           9.6

C                                   12.0                          15.3

E                                    15.9                          12.4

Rit = Return for stock i during period t

Rmt = Return for the aggregate market during period t

QUESTION 2

Compute the abnormal rates of return for the five stocks in Problem 1 assuming the following systematic risk measures (betas):

STOCKS                          βi

B                                    0.95

F                                    1.25

T                                    1.45

C                                    0.70

E                                   -0.30

QUESTION 3

Compare the abnormal returns in Problems 1 and 2 and discuss the reason for the difference in each case.

QUESTION 4

Look up the daily trading volume for the following stocks during a recent five-day period:

·         Merck

·         Caterpillar

·         Intel

·         McDonald’s

·         General Electric

Randomly select five stocks from the NYSE, and examine their daily trading volume for the same five days.

a.      What are the average volumes for the two samples?

b.      Would you expect this difference to have an impact on the efficiency of the markets for the two samples? Why or why not?

CHAPTER 3

QUESTION 3

Using published sources (for example, The Wall Street Journal, Barron’s, Federal Reserve Bulletin), look up the exchange rate for U.S. dollars with Japanese yen for each of the past 10 years (you can use an average for the year or a specific time period each year). Based on these exchange rates, compute and discuss the yearly exchange rate effect on an investment in Japanese stocks by a U.S. investor. Discuss the impact of this exchange rate effect on the risk of Japanese stocks for a U.S. investor.

QUESTION 4

The following information is available concerning the historical risk and return relationships in the U.S. capital markets:

US CAPITAL MARKETS TOTAL ANNUAL RETURNS, 1990 – 2011

Investment                                                       Arithmetic        Geometric        Standard Deviation

Category                                                             Mean                Mean                    of Returna

Common stocks                                                10.28%               8.81%                      16.9%

Treasury bills                                                      3.54                  3.49                           3.2

Long-term government bonds                            5.10                  4.91                           6.4

Long-term corporate bonds                                5.95                  5.65                           9.6

Real estate                                                          9.49                  9.44                           4.5

aBased on arithmetic mean

a.      Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making.

b.      For the time period indicated, rank these investments on a relative basis using the coefficient of variation from most to least desirable. Explain your rationale.

c.       Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returns that an investor would have expected to achieve 95 percent of the time from holding common stocks.

QUESTION 5

You are given the following long-run annual rates of return for alternative investment instruments:

 U.S. Government T-bills 3.50% Large-cap common stock 11.75 Long-term corporate bonds 5.50 Long-term government bonds 4.90 Small-capitalization common stock 13.10

The annual rate of inflation during this period was 3 percent. Compute the real rate of return on these investment alternatives.

Pages (550 words)
Approximate price: -

Why Work with Us

Top Quality and Well-Researched Papers

We always make sure that writers follow all your instructions precisely. You can choose your academic level: high school, college/university or professional, and we will assign a writer who has a respective degree.

We have a team of professional writers with experience in academic and business writing. Many are native speakers and able to perform any task for which you need help.

Free Unlimited Revisions

If you think we missed something, send your order for a free revision. You have 10 days to submit the order for review after you have received the final document. You can do this yourself after logging into your personal account or by contacting our support.

Prompt Delivery and 100% Money-Back-Guarantee

All papers are always delivered on time. In case we need more time to master your paper, we may contact you regarding the deadline extension. In case you cannot provide us with more time, a 100% refund is guaranteed.

Original & Confidential

We use several writing tools checks to ensure that all documents you receive are free from plagiarism. Our editors carefully review all quotations in the text. We also promise maximum confidentiality in all of our services.

Our support agents are available 24 hours a day 7 days a week and committed to providing you with the best customer experience. Get in touch whenever you need any assistance.

Try it now!

## Calculate the price of your order

Total price:
\$0.00

How it works?

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Our Services

No need to work on your paper at night. Sleep tight, we will cover your back. We offer all kinds of writing services.

## Essay Writing Service

No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.

An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.

Editing Support

Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.

Revision Support

If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.