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24) Which of the following statements is false? A) We should be suspicious of beta estimates that are extreme relative to industry norms. B) When using historical data, there is always the possibility of estimation error. C) Evidence suggests that betas tend to revert toward zero over time. D) For stocks, common practice is to use at least two years of weekly return data or five years of monthly return data when estimating beta. C) Evidence suggests that Alpha’stend to revert toward zero over time. Assume that the CAPM is a good description of stock price returns.
The market expected return is 8% with 12% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers, but it does change the expected returns of the following stocks as follows: StockExpected ReturnVolatilityBetaTaggart Transcontinental8%28%1.2Rearden Metal13%40%1.7Wyatt Oil7%20%0.8Nielson Motors10%32%1.3Verspreiden niet toegestaan | Gedownload door Robbert Bon ([email protected])lOMoARcPSD
25) Which of the following stocks represent buying opportunities? 1. Taggart Transcontinental 2. Rearden Metal 3. Wyatt Oil 4. Nielson Motors 26) The tendency to hang on to losers and sell winners is known as the 27) The writer (“seller”) of a put option has lOMoARcPSD
Consider the following information on options from the CBOE for Merck: 28) Assume you want to sellone option contract that with an exercise price closest to being at-the-money and that expires January 2009. The current price that you would receive for such a contract is: A) $6.80 B) $3.80 C) $6.50 D) $3.90 ABCD: the question did not state whether it was a call or put option. If call option, then you sell at the bid price of 6.50 29) Which of the following statements is false?