Question

Investor X runs a regression of excess returns of stock A on excess market returns. They find that stock A's excess returns take the following functional form: y = 0.003 + 1.12x. If the expected market return over the next year is 12.5% and the risk-free rate is 1.50%, what return should investor X expect from stock A for the same period? a) 15.50% b) 15.80% c) 13.82% d) 14.12%

Name: investor x runs a regression of excess returns of stock a on excess market returns they find that stock as excess returns take the following functional form y 0003 112x if the expected marke 89301
Uploaded: 2023-08-28T01:17:36-08:00
Duration: 2 min 11 s
Channel: Akash M
Description: investor x runs a regression of excess returns of stock a on excess market returns they find that stock as excess returns take the following functional form y 0003 112x if the expected marke 89301

          Investor X runs a regression of excess returns of stock A on excess market returns. They find that stock A's excess returns take the following functional form: y = 0.003 + 1.12x. If the expected market return over the next year is 12.5% and the risk-free rate is 1.50%, what return should investor X expect from stock A for the same period? 

a) 15.50% 
b) 15.80% 
c) 13.82% 
d) 14.12%

Added by Matthew H.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Akash M

08/28/2023

Step 1

Excess market return = Expected market return - Risk-free rate Excess market return = 12.5% - 1.50% Excess market return = 11% Show more…

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Investor X runs a regression of excess returns of stock A on excess market returns. They find that stock A's excess returns take the following functional form: y = 0.003 + 1.12x. If the expected market return over the next year is 12.5% and the risk-free rate is 1.50%, what return should investor X expect from stock A for the same period? a) 15.50% b) 15.80% c) 13.82% d) 14.12%