(14) The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model : a. If an investment with a beta of 8 offers an expected return of 9.8%, does it have a positive NPV? b. If the market expects a return of 11.2% from stock X, what is its beta?

(14) The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model : a. If an investment with a beta of 8 offers an expected return of 9.8%, does it have a positive NPV? b. If the market expects a return of 11.2% from stock X, what is its beta?

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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Similar questions

Stock A has an expected return of 13.52 percent. Stock B has an expected return of 9.24 percent. Assuming the Capital Asset Pricing Model holds, and Stock A's beta is greater than Stock B's beta by 0.32, what is the expected market risk premium (in percent)? Answer to two decimals
The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.4? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.8 offers an expected return of 9.0%, does it have a positive or negative NPV? d. If the market expects a return of 11.0% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Market risk premium |% a. b. Return on investment % с. NPV d. Beta
Assume the expected return on the market is 16 percent and the risk-free rate is 4 percent. -What is the expected return for a stock with a beta equal to 0.50? - What is the market risk premium?
Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) a. The effect of a change in the market risk premium depends on the slope of the yield curve. b. If the market risk premium increases by 1%, then the required return on all stocks will rise by 1%. c. If the market risk premium increases by 1%, then the required return will increase by 1% for a stock that has a beta of 1.0. d. The effect of a change in the market risk premium depends on the level of the risk-free rate. e. If the market risk premium increases by 1%, then the required return will increase for stocks that have a beta greater than 1.0, but it will decrease for stocks that have a beta less than 1.0.
Consider a firm with a beta of 1.57. If the market return is 6.73% and the risk-free rate is 0.90%, what is the firm's expected return according to the capital asset pricing model? Round your answer to four decimal places, e.g., enter 12.34 for 12.34%.
In an economy where the Capital Asset Pricing Model(CAPM) holds, the riskfree interest rate is 1%. The expected return of the market portfolio is 16% and its standard deviation is 20%. Suppose there is a portfolio with expected return of 25%. What should be its standard deviation? Select one: a.31.25% b.30% c.32% d. Insufficient information to determine the answer.
You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%
risk-free rate have to be if they are correctly priced? (See Problems 19 and 20.) 11.4 CAPM Suppose the risk-free rate is 8 percent. The expected return on the market is 14 percent. If a particular stock has a beta of .60, what is its expected return based on the CAPM? If another stock has an expected return of 20 percent, what must its beta be? (See Problem 13.)
The firm's beta is 1.2. The risk-free rate is 4.0% and the expected market return is 9%. What is the cost of equity using CAPM?
Suppose the risk-free rate is 8%. The expected return on the market is 16%. If a particularstock has a beta of 0.7, what is its expected return based on the Capital Asset PricingModel? If another stock has an expected return of 24%, what must its beta be?

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