A stock has a required return of 11%, the risk- free is 7%, and the market risk premium is 4%. a. What is the stock's beta? b. If the market risk premium increased to 6%, what would happen to the stock's required rate of return? What would it be? Assume that the risk-free rate and the beta remain unchanged.

A stock has a required return of 11%, the risk- free is 7%, and the market risk premium is 4%. a. What is the stock's beta? b. If the market risk premium increased to 6%, what would happen to the stock's required rate of return? What would it be? Assume that the risk-free rate and the beta remain unchanged.

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

See similar textbooks

Similar questions

You are trying to figure out the risk-free rate estimate. Here is information about a stock's CAPM return: The beta is 0.9 The market risk premium is 5.2% The stock's return is 10% Given this information, what is the estimate for the risk-free rate? Answer:
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 8% 55% B 4% 45% Correlation = −1 Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a “synthetic” risk-free asset?) (Round your answer to 2 decimal places.) b. Could the equilibrium rƒ be greater than rate of return?
suppose a risk free rate is 6% and the market premium is 7%. D1 is 1.25 per share and stock beta is 1.15. What is the required return?
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
Assume that the CAPM holds. One stock has an expected return of 10% and a beta of 0.6. Another stock has an expected return of 11% and a beta of 1.5. What is the expected return on the market?
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.
Beta for stock AAA=0, so, A) stock AAA's return = the return of the market portfolio. B) stock AAA's required return = the risk-free rate C) stock AAA has a promised return, regardless of the market condition. D) stock AAA's return >return of the market portfolio.
A stock has an expected return of 0.11, its bets is 0.82, and the risk-free rate is 0.04. What must the expected return on the market be?
A stock has a required return of 10%; the risk- free rate is 3.5%, and the market risk premium is 4%. a. What is the stock's beta? b. If the market risk premium increased to 10%, what would happen to the stock's required rate of return?
Suppose securities A, B, and C have the following expected return and risk. Stock Expected return Risk A 8% 6% B 7% 9% C 13% 9% What is the coefficient of variation for stock A?
Assume that the risk-free rate is 7.5% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to one decimal place. _________ % What is the required rate of return on a stock with a beta of 1.8? Round your answer to one decimal place. _____________ %

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS