Answered: A company has a beta of 1.2, the…

A company has a beta of 1.2, the risk-free rate is 3%, and the expected market return is 8%. Using the Capital Asset Pricing Model (CAPM), calculate the expected return on the company's stock.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

See similar textbooks

Related questions

Q: need help by real expert and true answer...

A: To find how much interest the bank collected for the company, we need to reconcile the book balance…

Q: What does the beta of a stock measure?A) The company’s profitabilityB) The volatility of the stock…

A: The correct answer is:B) The volatility of the stock compared to the marketExplanation:Beta measures…

Q: Take 1.01^-36=

A: We will calculate the Equated Monthly Installment (EMI) using the loan amortization formula:EMI =…

Q: No chatgpt tool. Which of the following is considered a risk-free investment?A) Corporate bondsB)…

A: The correct answer is: B) Treasury bills.Explanation:Treasury bills (T-bills) are short-term…

Q: I really need help in this problem. Thank you!!

A: Step 1 : Identify the type of policy The insured purchased a 15-year level term life insurance…

Q: I need help in this finance problem if used ai i will unhelpful.

A: To find Hamilton Biotech's Return on Equity (ROE), we can use the DuPont formula:DuPont Formula:ROE…

Q: no solve with assumption data Please don't solve i mistakely posted blurr image. i will give…

A: Investment turnover is a financial ratio that measures the efficiency of a company's use of its…

Q: Which of the following is considered a long-term financing source for a company?A) Accounts…

A: The correct answer is: B) Common StockExplanation:Common Stock represents equity ownership in a…

Q: If value is not clear then please comment i will write values dont solve question, i will give…

A: To calculate the investment turnover, we use the following formula:Conclusion:The provided data does…

Q: Company P/S Multiples Facebook 13.33 Snap 18.22 Twitter 13.27

A: 1. Calculate the Average Price-to-Sales (P/S) Ratio:To find the average P/S ratio of the comparable…

Q: Finance problem solve without ai

A: To calculate the cost of equity (Ke) for TaTa Plc, we use the Gordon Growth Model (Dividend Discount…

Q: What do you know about finance subject ? how many types.

A: Importance of FinanceFinance plays a crucial role in:Personal financial healthBusiness growth and…

Q: Need solution for this qn

A: Return on Equity (ROE) is a measure of financial performance calculated by dividing net income by…

Q: Solve this step by step .

A: Given Information:Policy Type: 15-year level term life insuranceFace Amount: $100,000Accidental…

Q: Correct solution by real experts.

A: The debt-equity ratio is given by:Debt-Equity Ratio = Total Debt / Total EquityWe are given:Total…

Q: What is corporate finance? how it is useful in finance explain ? in 50words

A: Corporate Finance is a branch of finance that focuses on how businesses manage their financial…

Q: California Homes Associates is about to go public. The investment banking firm of Dillon and…

A: Dillon and Associates need to set the price for the IPO of California Homes Associates. Their…

Q: A bond selling below its par value is referred to as:A) A discount bondB) A premium bondC) A…

A: The correct answer is:A) A discount bondExplanation:A discount bond is a bond that is sold for less…

Q: How do you handle conflicts or disagreements with team members or colleagues when working on…

A: Conflicts and disagreements are a natural part of working in any team environment, especially when…

Q: About this Assignment For the Corporate Finance 301 assignment, you will submit a research paper…

A: To address the assignment prompt, I first broke down the four key financial risks—market, liquidity,…

Q: What is ethical dilemma?

A: In order to understand what an ethical dilemma is, it's important to first understand the concept of…

Q: How to answer “Why” finance interview questions?

A: To answer "Why finance?" in an interview, use the 3-step approach:Show genuine interest - Talk about…

Q: no What is the main purpose of financial ratios?A) To guarantee a company's profitabilityB) To…

A: B) To evaluate a company's financial performance and healthThe main purpose of financial ratios is…

Q: What are some of the characteristics of a firm with a long operating cycle?

A: A company with a lengthy operational cycle usually has a number of unique traits. The time it takes…

Q: No ai only expert...???

A: The beneficiary will receive $200,000 from the policy.Here's why:The face amount of the policy is…

Q: Need ass

A: To calculate the price of a dividend-paying stock, we use the Gordon Growth Model (Dividend Discount…

Q: What does the beta of a stock measure?A) The company’s profitabilityB) The volatility of the stock…

A: The correct answer is:B) The volatility of the stock compared to the marketExplanation:Beta measures…

Q: Co

A: Debt: $4,910Debt-Equity Ratio: 0.52The debt-equity ratio is defined as:Debt-Equity Ratio = Debt /…

Q: Which of the following is not true about private equity funds?* Private equity funds are pools of…

A: The statement that is not true about private equity funds is:"Private equity funds are usually…

Q: What is the primary goal of financial management in a corporation?A) Maximize salesB) Minimize…

A: The primary goal of financial management in a corporation is to maximize shareholder wealth, which…

Q: I need help by experienced expert and true answer in this question.

A: We are given:Sales = $12 millionROE = 12% = 0.12Total asset turnover = 4Equity = 40% of total…

Q: What is the different sources of finance of an organisation??

A: Organizations have various sources of finance to fund their operations, growth, and investments.…

Q: What are some common methods PE firms use to increase portfolio company value?

A: Private equity firms commonly increase portfolio company value through:Operational Improvements -…

Q: Give correct solution without use of AI .

A: To find how much must be invested now (Present Value), we use the compound interest formula:PV = FV…

Q: Solve it carefully

A: This question involves valuing a dividend-paying stock using the Gordon Growth Model (also known as…

Q: No chatgpt! A portfolio's risk can be reduced by: A) Investing in a single stock B) Diversifying…

A: B) Diversifying investments across different asset classesDiversification reduces risk by spreading…

Q: Correct answer i need

A: Anshul needs Rs 25,000 for his trip to Goa. He plans to repay this amount over a period of 3 years…

Q: Let S = $100, K = $95, r = 8% (continuously compounded), σ = 30%, δ = 0, T = 1 year, and n = 3.…

A: Step 1. Given DataWe are given the following values.S=100 (Stock price)K=95 (Strike price)r=8%=0.08…

Q: Don't use ai. if image is blurr or data is not showing properly then dont answer i will sure…

A: Here are the values:Sales = $150,000 (Per Unit: $25)Less Variable Expenses = $90,000 (Per Unit:…

Q: Explain. The decisions relating to the use of profits or income of an entity or organization are…

A: The correct answer is: b. Dividend decisionsExplanation:Dividend decisions involve determining how…

Q: Finance qn

A: The formula for Return on Equity (ROE) is:ROE = Profit Margin × Total Asset Turnover × Equity…

Q: Tell me why each of the financial statements by themselves is inadequate for evaluating a company?

A: Each financial statement alone gives only part of the picture:- **Income Statement** shows…

Q: The time value of money concept is based on the idea that: A) Money loses value over timeB) Money…

A: The correct answer is: D) A dollar today is worth more than a dollar in the futureExplanation:The…

Q: I mistakenly submitted blurr image please don't answer . comment please i will write values.

A: Given:Sales = $1,200,000Average Invested Assets = $600,000 We use the following formula: Investment…

Q: Plz correct answer by best expert..

A: To calculate the price of a dividend-paying stock, we use the Gordon Growth Model (Constant Growth…

Q: Question Three A company needs $10,000 in 5 years to replace a piece of equipment. How much must be…

A: To solve this, we'll use the present value formula for compound interest:Formula:PV = FV / (1 +…

Q: Provide true solution.

A: Anshul needs a loan of Rs 25,000 with an annual interest rate of 11% for a period of 3 years. We…

Q: What is the primary goal of financial management?A) Maximizing profitsB) Maximizing shareholder…

A: The primary goal of financial management is:B) Maximizing shareholder wealthThis means making…

Q: What is the market risk premium?Explain .

A: MEANING :The market risk premium (MRP) is a fundamental concept in finance that represents the…

Q: 2.) The following are a project’s cash flows. What is the project’s IRR? Year…

A: Step 1. Definition of IRR (Internal Rate of Return) The Internal Rate of Return (IRR) is the…

Question

A company has a beta of 1.2, the risk-free rate is 3%, and the expected market return is 8%. Using the Capital Asset Pricing Model (CAPM), calculate the expected return on the company's stock.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Use the extended DuPont equation to provide a breakdown of Computrons projected return on equity. How does the projection compare with the previous years and with the industrys DuPont equation?
The file Fortune500 contains data for profits and market capitalizations from a recent sample of firms in the Fortune 500 a. Prepare a scatter diagram to show the relationship between the variables Market Capitalization and Profit in which Market Capitalization is on the vertical axis and Profit is on the horizontal axis. Comment on any relationship between the variables. b. Create a trendline for the relationship between Market Capitalization and Profit. What does the trendline indicate about this relationship?
A company had WACC (weighted average cost of capital) equal to 8. % If the company pays off mortgage bonds with an interest rate of 4% and issues an equal amount of new stock considered to be relatively risky by the market, which of the following is true? a. residual income will increase. b. ROI will decrease. c. WACC will increase. d. WACC will decrease.
This calculation determines profitability or growth potential of an investment, expressed as a percentage, at the point where NPV equals zero A. internal race of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. future value method
Start with the partial model in the file Ch07 P25 Build a Model.xlsx on the textbook’s Web site. Selected data for the Derby Corporation are shown here. Use the data to answer the following questions. Calculate the estimated horizon value (i.e., the value of operations at the end of the forecast period immediately after the Year-4 free cash flow). Assume growth becomes constant after Year 3. Calculate the present value of the horizon value, the present value of the free cash flows, and the estimated Year-0 value of operations. Calculate the estimated Year-0 price per share of common equity.
Suppose that the return for a particular large-cap stock fund is normally distributed with a mean of 14.4% and standard deviation of 4.4%. a. What is the probability that the large-cap stock fund has a return of at least 20%? b. What is the probability that the large-cap stock fund has a return of 10% or less?
Consider a decision maker who is comfortable with an investment decision that has a 50% chance of earning $25,000 and a 50% chance of losing $12,500, but not with any larger investments that have the same relative payoffs. Write the equation for the exponential function that approximates this decision maker’s utility function. Plot the exponential utility function for this decision maker for x values between –20,000 and 35,000. Is this decision maker risk-seeking, risk-neutral, or risk-averse? Suppose the decision maker decides that she would actually be willing to make an investment that has a 50% chance of earning $30,000 and a 50% chance of losing $15,000. Plot the exponential function that approximates this utility function and compare it to the utility function from part (b). Is the decision maker becoming more risk-seeking or more risk-averse?
The scatter chart in the following figure was created using sample data for profits and market capitalizations from a sample of firms in the Fortune 500. a. Discuss what the scatter chart indicates about the relationship between profits and market capitalization? b. The data used to produce this are contained in the file Fortune500. Calculate the covariance between profits and market capitalization. Discuss what the covariance indicates about the relationship between profits and market capitalization? c. Calculate the correlation coefficient between profits and market capitalization. What does the correlations coefficient indicate about the relationship between profits and market capitalization?
Premium for Financial Risk Ethier Enterprise has an unlevered beta of 1.0. Ethier is Financed with 50% debt and has a levered beta of 1.6. If the risk-free rate is 5.5% and the market risk premium is 6%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk?
Explain how to use the free cash flow valuation model to find the price per share of common equity.
Assume a company is going to make an investment in a machine of $825,000 and the following are the cash flows that two different products would bring. Which of the two options would you choose based on the payback method?