According to the CAPM, what is the expected risk premiumof a stock with a beta of 0.8 if the market risk premium is8%?Select one:O a. 8%O b. 6%O c. 6.4%O d. 8.4%O e. More information is required to answer thisquestion.

The Capital Asset Pricing Model is used to determine the expected return of security with the help…

Answered: According to the CAPM, what is the…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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#17FAVORABLE UNFAVORABLEMARKET MARKETEQUIPMENT ( $) ($)Sub 100 300,000 –200,000Oiler J 250,000 –100,000Texan 75,000 –18,000For example, if Ken purchases a Sub 100 and ifthere is a favorable market, he will realize a profitof $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. ButKen has always been a very optimistic decisionmaker.(a) What type of decision is Ken facing?(b) What decision criterion should he use?(c) What alternative is best? #18Although Ken Brown (discussed in Problem 3-17) is the principal owner of Brown Oil, his brother Bob iscredited with making the company a financial success. Bob is vice president of finance. Bob attributeshis success to his pessimistic attitude about business and the oil industry. Given the information fromProblem 3-17, it is likely that Bob will arrive at a different decision. What decision criterion should Bobuse, and what alternative…
Stocks with high market betas have higher expected returns than stocks with low market betas. This evidence is inconsistent withI. The weak form efficient market hypothesisII. The semi-strong form efficient market hypothesisIII. The strong form efficient market hypothesis a) I, II, and III b) I and II c) I d) None of I, II, and III
Which one of the following is the primary determinant of a firm's cost of capital? a.Use of the funds b.cost of debt c.D/E ratio d.Tax rate
Purchase Discounts It is typically beneficial for companies to take advantage of early-paymentdiscounts allowed on purchases made on credit. To see why this is the case, determine the effectiverate of interest associated with not taking advantage of the early-payment discount for each of thefollowing situations. Assume in each case that payment is made on the 30th day of the billing cycle.Required1. What is the opportunity cost of not taking advantage of the discount associated with purchases madeunder the following terms: 2/10, n/30? (Show calculations.)2. What is the opportunity cost of not taking advantage of the discount associated with purchases madeunder the following terms: 1/10, n/30? (Show calculations.)3. To motivate managers to take early-payment discounts, what is the appropriate accounting treatment forpurchase discounts?
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the price of a stock on July 1 is $30. A trader buys 100 call options on the stock with a strike price of $34 when the option price is $2. The options are exercised when the stock price is $40. The trader's net profit is ?
Discuss the Thaler wine problem with your group, and summarize the discussion and any conclusions in a few sentences here. “Suppose you bought a case of a good 1982 Bordeaux for $20 a bottle. The wine now sells at auction for about $75 a bottle. You have decided to drink a bottle. Which of the following best captures your feeling of the cost to you of drinking this bottle?” (Thaler, 1999) $0 $20 $20 plus interest $75 -$55 (negative $55 cost) Or something else?
Which of the following statement is true? O For any type of derivatives, the payoffs will never be negative For any type of derivatives, the profit will never be negative There is no derivative that offers non-negative payoffs There is no derivative that offers non-negative profit All of the statements above are wrong
2
All financial institutions provide different financial products and services that expose them to different types of risks that require different risk mitigating practices and techniques. These risks include; credit risk liquidity risk, interest rate risk, market risk, foreign exchange risk, solvency risks, operational risks and model risk. Which of the following is not true about credit risk? Select one: a. Performance risk is similar to credit risk. The borrower´s performance on an operation or specific project determines the degree of transaction risk. b. Measures based on the credit quality of the debt. As ratings are ordinal measures, they are sufficient to value credit risk. c. The risk of the issuers and borrowers are evaluated in prices in a capital market setting and can be seen visibly, or through credit spreads, or as add-ons to the risk-free rate. d. Credit risk is similar to country risk, which is essentially the risk crisis in a country. Examples of…
If all the individual land parcels in a new housing development are sold for $300,000 each, the developer projects total revenue from land sales will be $120 million. If the land lender requires that their $60 million land loan be completely paid off by the time that 75% of the individual land parcels have been sold, what would be the lender’s minimum release price for each parcel? a. $150,000 b. $200,000 c. $250,000 d.$300,000

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According to the CAPM, what is the expected risk premium of a stock with a beta of 0.8 if the market risk premium is 8%? Select one: O a. 8% O b. 6% O C. 6.4% O d. 8.4% e. More information is required to answer this question.