Tut9_2009 - BUS3026W Finance II 2009 - Tutorial 9 Due:...

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BUS3026W Finance II 2009 - Tutorial 9 Due: Monday 11 May ______________________________________________________________ Question One Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 6% and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2 (r M -r f ) 2% + 0.8 (r M -r f ) R-Square 0.576 0.436 Residual standard deviation 10.3% 19.1% Standard deviation of excess returns 21.6% 24.9% a. Calculate the following statistics for each stock: i. Alpha ii. Information Ratio iii. Sharpe Measure iv. Treynor Measure b. Which stock is the best choice under the following circumstances? Justify your answer. i. This is the only risky asset to be held by the investor. ii. This stock will be mixed with the rest of the investor’s portfolio, currently composed solely of holdings in the market index fund.
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This note was uploaded on 06/01/2011 for the course FIN 3026W taught by Professor Drtoerien during the Summer '09 term at University of Cape Town.

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Tut9_2009 - BUS3026W Finance II 2009 - Tutorial 9 Due:...

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