Which fund has a higher systematic risk

Assignment Help Financial Management

Reference no: EM131342114

You have collected 6 years of monthly data on return of funds ABC and XYZ as well as on S&P/TSX composite index and the government short-term bills (risk-free). You have run two (excess return) index-model regressions for the two bonds and the results are as follows:

for ABC

rp- rf= .017 +1.2( rM- rf) + 2.3( rM-rf)^2 R^2 =0.92

for XYZ

rp - rf= 0.11+1.6(rM- rf) + 1.0( rM-rf)^2 R^2=0.75

All regression coefficients are statistically significant at 1% confidence interval.

a. Which fund has a higher systematic risk? Why?

b. Which fund has a higher residual risk? Why?

c. Which fund has a higher abnormal return? Why?

d. The risk-free rate over the period was 5 percent, and the market’s average return was 15 percent. Standard deviation of excess return for ABC and XYZ are 20% and 25%. Calculate Sharpe and Treynor’s measure for each fund.

Reference no: EM131342114

Questions Cloud

Preferred stock-debt and market : You are given the following information concerning Parrothead Enterprises: Debt: 10,800 7.3 percent coupon bonds outstanding, with 22 years to maturity and a quoted price of 108.5. Market: An expected return of 10.2 percent, a risk-free rate of 5.15 ..

What is the net cost of call premium : Dairy Corp. has a $20 million bond obligation outstanding and a coupon rate of 8%. Dairy Corp. has the ability to buy back the debt at 7% above par and issue new debt at 6.5%, so it is considering refunding this bond. Assume the underwriting cost for..

What is the value of the combined firm : When a firm has cash flow problems, there are potential negative feedback effects. For example, the firm may need to cut capital expenditures and research and development activities that are necessary to remain competitive in its industry. What perce..

What is the npv of your investment : Waysafe Inc. consists of two grocery stores. The first store is fairly valued at $60M and the second store, valued at $50M, could be torn down and then the land could be sold for $75M. You announce your intention to purchase this firm using cash. Sha..

Which fund has a higher systematic risk : You have collected 6 years of monthly data on return of funds ABC and XYZ as well as on S&P/TSX composite index and the government short-term bills (risk-free). Which fund has a higher systematic risk? Why? Which fund has a higher residual risk? Why?..

Calculate strickler cash conversion cycle : The Wei Corporation expects next year's net income to be $15 million. The firm's debt ratio is currently 40%. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. Calculate Strickler’s cash co..

What measurement instruments will you use : RES-600-2500: What are the data collection strategies you will use in your research proposal? What measurement instruments will you use? What sampling methods will you use?

Is there agreement and a contract : Johnny and Sally are students at Nononline University. Sally often admires Johnny's iPod in the Business Law class that they take together. One Friday night she decides to send Johnny the following e-mail:

Find an article that focuses on effective professional : Your Professional Experience assignment is to find an article that focuses on effective professional communications published since 2015. You should insert a new row below the most recent entry (contact your instructor if you need assistance with ..

User Account

All Pages