Problem 12-21 CAPM (LO3, CFA2)Landon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-free rate is 4.0 percent, the expected return on the market is 12.3 percent, and the betas of the two stocks are 1.2 and .9, respectively.Landon's own forecasts of the returns on the two stocks are 14.60 percent for Furhman Labs and 11.30 percent for Garten.a. Calculate the required return for each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to2 decimal places.)StockFurhman LabsGarten TestingRequired ReturnGarten TestingOvervaluedOUndervaluedOFair valued%%b. Is each stock undervalued, fairly valued, or overvalued?Furhman LabsOUndervaluedOOvervaluedFair valued

The required rate of return (hurdle rate) is the minimum return that an investor is expecting to…

andon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk ee rate is 4.0 percent, the expected return on the market is 12.3 percent, and the betas of the two stocks are 1.2 and .9, respectively andon's own forecasts of the returns on the two stocks are 14.60 percent for Furhman Labs and 11.30 percent for Garten. . Calculate the required return for each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded decimal places.) Stock Furhman Labs Garten Testing Required Return % %

andon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk ee rate is 4.0 percent, the expected return on the market is 12.3 percent, and the betas of the two stocks are 1.2 and .9, respectively andon's own forecasts of the returns on the two stocks are 14.60 percent for Furhman Labs and 11.30 percent for Garten. . Calculate the required return for each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded decimal places.) Stock Furhman Labs Garten Testing Required Return % %

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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Stock Y has a beta of 0.9 and an expected return of 9.46 percent. Stock Z has a beta of 2.1 and an expected return of 15.59 percent. What would the risk-free rate (in percent) have to be for the two stocks to be correctly priced relative to each other? Answer to two decimals.
Stock Y has a beta of 1.4 and an expected return of 15.1 percent. Stock Z has a beta of .7 and an expected return of 8.6 percent. If the risk-free rate is 5 percent and the market risk premium is 6.5 percent, the reward-to-risk ratios for Stocks Y and Z are the SML reward-to-risk is percent, Stock Y is and percent, respectively. Since and Stock Z is (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
The expected rate of return for the stock of Cornhusker Enterprises is 15 percent, with a standard deviation of 5 percent. The expected rate of return for the stock of Mustang Associates is 10 percent, with a standard deviation of 2 percen a. Which stock would you consider to be riskier? Round your answers to two decimal places. The coefficient of variation of returns for Cornhusker's stock: The coefficient of variation of returns for Mustang's stock: ✓is riskier. -Select- b. If you knew that the beta coefficient of Cornhusker stock is 0.9 and the beta of Mustang is 0.6, how would your answer to Part a change? Looking only at systematic risk -Select- ✓is riskier.
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The two stocks in your portfolio, X and Y, have independent returns, so the correlation between them, rXY is zero. Your portfolio consists of $50,000 invested in Stock X and $50,000 invested in Stock Y. Both stocks have an expected return of 15%, betas of 1.6, and standard deviations of 30%. Which of the following statements best describes the characteristics of your 2-stock portfolio? a. Your portfolio has a standard deviation less than 30%, and its beta is greater than 1.6. b. Your portfolio has a beta equal to 1.6, and its expected return is 15%. c. Your portfolio has a beta greater than 1.6, and its expected return is greater than 15%. d. Your portfolio has a standard deviation greater than 30% and a beta equal to 1.6. e. Your portfolio has a standard deviation of 30%, and its expected return is 15%.
Chee Chew's portfolio has a beta of 1.25 and earned a return of 13.6% during the year just ended. The risk-free rate is currently 3.9%. The return on the market portfolio during the year just ended was 10.7%. a. Calculate Jensen's measure (Jensen's alpha) for Chee's portfolio for the year just ended. b. Compare the performance of Chee's portfolio found in part a to that of Carri Uhl's portfolio, which has a Jensen's measure of -0.19. Which portfolio performed better? Explain. c. Use your findings in part a to discuss the performance of Chee's portfolio during the period just ended. a. The Jensen's measure (Jensen's alpha) for Chee's portfolio is (Round to two decimal places.) (…)
What is the expected rate of return on R. Halsey Inc. stock if it has a correlation coefficient equal to 0.48 with the market portfolio and a standard deviation of 0.25? The risk free rate is 3% and the return on the market is 12%. Assume CAPM holds and the risk free and market combined portfolio has a standard deviation of 14% and an expected return of 8 %
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