Purchase Solution

Beta, Covariance, and Deviation

Not what you're looking for?

Ask Custom Question

Please help me understand the formulas and the setup. Spread sheet in Excel will be helpful too (when applicable).

BioMax Inc. offers an 8 percent coupon bond that has a $1,000 par value, semiannual coupon payments and 20 years of its original 25 years left to maturity. Which of the following statements is true if the market return on similar bonds is 10%?
a. The bond will sell at a premium of $1,198 because the coupon rate is greater than the market interest rate.
b. The bond will sell at a discount of $828 because the coupon rate is greater than the market interest rate.
c. The bond will sell at a premium of $1,198 because the coupon rate is less than market interest rate.
d. The bond will sell at a discount of $828 because the coupon rate is less than the market interest rate.

Aquaman stock has exhibited a standard deviation in returns of 0.7, whereas Green Lantern
stock has exhibited a standard deviation of 0.8. The correlation coefficient between the
stock returns is 0.1. What is the standard deviation of a portfolio composed of 70%
Aquaman and 30% Green Lantern?
a. 0.75000
b. 0.32122
c. 0.61743
d. 0.56676

The stocks of Microsoft and Apple have a correlation coefficient of 0.6. The variance of Microsoft stock is 0.4 and the variance of Apple stock is 0.3. What is the covariance between the two stocks?
a. 0.21
b. 0.07
c. 0.72
d. 0.36

Star Solutions, Inc. paid a dividend last year of $3.55, which is expected to grow at a constant rate of 3%. Star Solutions has a beta of 1.8 and their stock is currently selling for $31.47. If the market interest rate is 9% and the risk-free rate is 4%, would you purchase Star Solutions' stock?
a. No, because it is overvalued $5.10 c. No, because it is overvalued $9.85
b. Yes, because it is undervalued $5.10 d. Yes, because it is undervalued $9.85

Purchase this Solution
Solution Summary

Beta, covariance and deviations are examined.

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

View More Free Quizzes
Related BrainMass Solutions

  • Market Returns using standard deviation and beta

    covariance = r * sigma m * sigma p where r = coefficient of correlation between returns of market and portfolio sigma = standard deviation of returns for market and portfolio respectively whereas the formula for beta is beta = covariance / sigma

  • Beta Calculation

    66697 Calculating covariance, and beta Hi, I need some help calculating covariance b/w 5 investments and market to obtain beta.

  • Calculate the market portfolio's standard deviation

    Their covariances with the market and their proportions follow: Security Covariance with Market Proportion A 242 0.2 B 360 0.3 C 155 0.2 D 210 0.3 Given these data, calculate the market portfolio's standard deviation.

  • average return, variance, standard deviation and beta

    The variance for the company's returns is therefore: (9-10.5)^2+ (10-10.5)^2+(11-10.5)^2+(12-10.5)^2 / 3=1.67 The standard deviation is the square root of the variance: Sqrt(1.67) = 1.29 Beta is the ratio of the covariance of the market and the

  • Stock valuation/standard deviation/beta

    of b= 50%, Sd(b) = Standard deviation of B = 20% We are given the covariance and we need the correlation coefficient.

  • Riskiness of an Isolated Asset

    The common measure of the riskiness of an asset held in isolation is the standard deviation. Note: beta and covariance measure the correlation between an asset and the market, and are not used for an asset held in isolation.

  • Beta and Cost of Equity Capital

    Covariance (XY)= Σxy / (n-1)= 0.002500 =0.0075/3 Correlation (XY)=Covariance(X,Y)/σx σy = 1.0000 =0.0025/(0.0646*0.0387) Step 2: Calculate Beta Beta = correlation x standard

  • Stock and Risk

    of GM = 0.9920 Expected return on GM= 9.98 % Solution calculates covariance beta and risk and expected return

  • Risk Assessment, Portfolio Management

    Standard deviation of returns for each stock Nike JNJ Standard deviation 0.0572 0.0613 c.       Covariance between the rates of return Covariance 0.00147 d.     

View More Related Solutions