You run a regression for the Tesla stock return on a market index to estimate theSML equation and find the following Excel output:Multiple RR-SquareAdjusted R-SquareStandard ErrorObservationsInterceptMarket=0.280.250.0240.016013.35 and 0.970.8 and 0.10.28 and 0.250.26 and 1.360.2 and 0.75CoefficientsStandardErrort-Stat p-Value0.20.75The resulting SML equation for Laternios is given by:Er Laternios]13.35 0.26 0.800.97 1.36 0.10+ __ × (E[rM] - rf)

Regression analysis on a stock provides insights into the relationship between the stock's returns…

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The resulting SML equation for Laternios is given by: Er Laternios + = X (E[rM] - rf)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

You run a regression for the Tesla stock return on a market index to estimate the
SML equation and find the following Excel output:
Multiple R
R-Square
Adjusted R-Square
Standard Error
Observations
Intercept
Market
=
0.28
0.25
0.02
40.01
60
13.35 and 0.97
0.8 and 0.1
0.28 and 0.25
0.26 and 1.36
0.2 and 0.75
Coefficients
Standard
Error
t-Stat p-Value
0.2
0.75
The resulting SML equation for Laternios is given by:
Er Laternios]
13.35 0.26 0.80
0.97 1.36 0.10
+ __ × (E[rM] - rf)

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Please fill out the parts in the above table that are shaded in yellow. You will notice that there are nine line items Please answer : Covariance with MP Correlation with Market Index Beta CAPM Req. Return
Assume that you run a regression on the raw returns of the stock of Company J against the raw returns of the market and find an intercept of 1.324 percent and a beta of 2.36. If the risk-free rate is 2.64 percent, and using the concept of Jensen's Alpha, then determine by how much this stock beat the market. Answer in decimal format. For example, if you answer is 3.33%, enter "0.0333"
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The index model has been estimated using historical excess return data for stocks A, B, and C, with the following results: RA = 0.02 + 0.9RM + eA RB = 0.04 + 1.2RM + eB RC = 0.10 + 1.ORM + eC OM oM = 0.22 o(eA) = 0.21 o(eB ) = 0.11 o(eC ) = 0.23 a. What are the standard deviations of stocks A, B, and C? b. Break down the variances of stocks A, B, and C into their systematic and firm-specific components. c. What is the covariance between the returns on each pair of stocks? d. What is the covariance between each stock and the market index?
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