Please solve for only d) Question 19A company is planning to invest in a stock with the following samples of stock price history forKKL and MPC.KKL closingstock priceMPC closingstock price45.688DateKKL DividendMPC DividendDec 0060.93848.20Jan 01Feb 01Mar 01Apr 01May 01Jun 01Jul 01Aug 01Sep 01Oct 01Nov 0158.0042.5053.0343.1047.1049.2945.160.180.0446.1947.400.1847.240.0445.0044.6050.3748.6745.950.0446.850.1838.3747.8838.2346.960.1846.650.05Dec 0147.1551.01The market returns for the twelve months are given below;DateMarket ReturnsJan 01Feb 016.94%-9.87Mar 014.86Apr 01May 01Jun 01Jul 01Aug 01Sep 01Oct 016.62-7.648.96-4.451.984.76-8.93Nov 01-2.55Dec 015.1a) Calculate the risk associated with investing in these stocks.b) Calculate the correlation coefficient between the two stocksc) Calculate the beta associated with each of these stocksd) Explain the betas of the two stocks

Beta is a measure of volatility of an asset. It is used as a measure which evaluates the…

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beta associated with eac d) Explain the betas of the two stocks

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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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

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Please solve for only d)

Question 19
A company is planning to invest in a stock with the following samples of stock price history for
KKL and MPC.
KKL closing
stock price
MPC closing
stock price
45.688
Date
KKL Dividend
MPC Dividend
Dec 00
60.938
48.20
Jan 01
Feb 01
Mar 01
Apr 01
May 01
Jun 01
Jul 01
Aug 01
Sep 01
Oct 01
Nov 01
58.00
42.50
53.03
43.10
47.10
49.29
45.16
0.18
0.04
46.19
47.40
0.18
47.24
0.04
45.00
44.60
50.37
48.67
45.95
0.04
46.85
0.18
38.37
47.88
38.23
46.96
0.18
46.65
0.05
Dec 01
47.15
51.01
The market returns for the twelve months are given below;
Date
Market Returns
Jan 01
Feb 01
6.94%
-9.87
Mar 01
4.86
Apr 01
May 01
Jun 01
Jul 01
Aug 01
Sep 01
Oct 01
6.62
-7.64
8.96
-4.45
1.98
4.76
-8.93
Nov 01
-2.55
Dec 01
5.1
a) Calculate the risk associated with investing in these stocks.
b) Calculate the correlation coefficient between the two stocks
c) Calculate the beta associated with each of these stocks
d) Explain the betas of the two stocks

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