4. Consider the following information for company XYZ: Probability Market Return 0.10 0.30 0.40 0.20 State 1 2 3 4 -0.12 0.03 0.10 0.20 Company Return -0.24 0.00 0.15 0.50 Assume that Cov(XYZ, Market)= 1.8408% and that the risk free rate = 3%. Using the CAPM, find XYZ's required rate of return.

4. Consider the following information for company XYZ: Probability Market Return 0.10 0.30 0.40 0.20 State 1 2 3 4 -0.12 0.03 0.10 0.20 Company Return -0.24 0.00 0.15 0.50 Assume that Cov(XYZ, Market)= 1.8408% and that the risk free rate = 3%. Using the CAPM, find XYZ's required rate of return.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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Question

Please DON'T use excel in solving this question.

4. Consider the following information for company XYZ:
Probability
Market Return
0.10
0.30
0.40
0.20
State
1
2
3
4
-0.12
0.03
0.10
0.20
Company Return
-0.24
0.00
0.15
0.50
Assume that Cov(XYZ, Market)= 1.8408% and that the risk free rate = 3%.
Using the CAPM, find XYZ's required rate of return.

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Step 2: Calculation of Expected Return of the Market

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Step 3: Calculation of Variance of the market

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Step 4: Calculation of Beta of the stock

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Step 5: Calculation of the required rate

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