1. Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 6%. A stock with a beta of 1 on IP and 0.6 on IR currently is expected to provide a rate of return of 13%. If industrial production actually grows by 6%, while the inflation rate turns out to be 9%, what is your best guess for the rate of return on the stock? (Round your answer to 1 decimal place.) answer: rate of return=?

1. Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 6%. A stock with a beta of 1 on IP and 0.6 on IR currently is expected to provide a rate of return of 13%. If industrial production actually grows by 6%, while the inflation rate turns out to be 9%, what is your best guess for the rate of return on the stock? (Round your answer to 1 decimal place.) answer: rate of return=?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section7.6: Valuing Nonconstant Growth Stocks

Problem 3ST

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Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 5%. A stock with a beta of 1 on IP and 0.7 on IR currently is expected to provide a rate of return of 10%. If industrial production actually grows by 6%, while the inflation rate turns out to be 6%, what will be your expected rate of return on the stock, given the new information about the industrial production rate and the inflation rate? (Enter your answer as a percentage rounded to 1 decimal places.) Expected rate of return %
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5%, and IR 4.0%. A stock with a beta of 1.2 on IP and 0.6 on IR currently is expected to provide a rate of return of 8%. If industrial production actually grows by 6%, while the inflation rate turns out to be 6.0%, what is your revised estimate of the expected rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.)
Required: Suppose two factors are identified for the U.S. economy: the growth rate of Industrial production, IP, and the Inflation rate, IR. IP is expected to be 5% and IR 6%. A stock with a beta of 1 on IP and 0.8 on IR currently is expected to provide a rate of return of 13%. If Industrial production actually grows by 6%, while the Inflation rate turns out to be 7%, what is your best guess for the rate of return on the stock? (Round your answer to 1 decimal place.) Rate of return
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 3%, and IR 3.4%. A stock with a beta of 2.8 on IP and 2.2 on IR currently is expected to provide a rate of return of 15%. If industrial production actually grows by 7%, while the inflation rate turns out to be 5.0%, what is your revised estimate of the expected return on the stock (write as percentage, rounded to one decimal place)?
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5%, and IR 4.0%. A stock with a beta of 2.1 on IP and 1.4 on IR currently is expected to provide a rate of return of 18% . If industrial production actually grows by 6%, while the inflation rate turns out to be 5.8%, what is your revised estimate of the expected rate of return on the stock? Note: Do not round intermediate calculations. Round your answer to 1 decimal place.
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 3%, and IR 5%. A stock with a beta of 1 on IP and .5 on IR currently is expected to provide a rate of return of 12%. If industrial production actually grows by 5%, while the inflation rate turns out to be 8%, what is your revised estimate of the expected rate of return on the stock?
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1. Assume that you expect the economy's rate of inflation to be 3 percent, giving an RFR of 6 percent and a market return (RM) of 12 percent. a. Draw the SML under these assumptions. b. Subsequently, you expect the rate of inflation to increase from 3 percent to 6 percent. What effect would this have on the RFR and the RM? Draw another SML on the graph from Part a. c. Draw an SML on the same graph to reflect an RFR of 9 percent and an RM of 17 percent. How does this SML differ from that derived in Part b? Explain what has transpired.
The U.S. risk-free rate is currently 4 percent. The expected U.S. market return is 11 percent. Solso, Inc. is considering a project that has a beta of 1.5. What is the cost of dollar-denominated equity?
The expected market return and risk for different assumptions about the state of the economy is shown below. State of Economy Probability of State Expected Market Return Fast growth 0.11 35% Slow growth 0.50 16% No growth 0.20 5% Recession 0.15 -22% Depression 0.04 -32% Compute the expected return and standard deviation. Note: Round your answers to 2 decimal places. Compute the expected return and risk for the following 2 scenarios: Note: Round your answers to 2 decimal places. Scenario 1: State of Economy Probability of State Expected Market Return Fast growth 0.09 38% Slow growth 0.33 16% No growth 0.36 2% Recession 0.19-18% Depression 0.03 -32% Scenario 2: State of Economy Probability of State Expected Market Return Fast growth 0.16 40% Slow growth 0.31 13% No growth 0.38 2% Recession 0.12-17% Depression 0.03 -33%
3. The following graph depicts a macro equilibrium. Answer the questions based on the information in the graph.(a) What is the equilibrium rate of GDP?(b) If full-employment real GDP is $1200, what problem does this economy have?(c) How large is the real GDP gap?