B - You are a little skeptical of the valuation you have calculated based on the competitors' PE ratios, so you decide to calculate a PE ratio based on Pendant's ROE and retention ratio. First, you need to figure out what an appropriate rate of return should be for holding Pendant's stock. You have collected monthly data for the excess return of the market and Pendant's stock over the last 5 years (given below). Assuming the risk free rate is 3.3% and you expect the market risk premium to be 3.1% over your investment horizon, what is Pendant's beta and expected return? (10.5 points total) Beta Expected Return
B - You are a little skeptical of the valuation you have calculated based on the competitors' PE ratios, so you decide to calculate a PE ratio based on Pendant's ROE and retention ratio. First, you need to figure out what an appropriate rate of return should be for holding Pendant's stock. You have collected monthly data for the excess return of the market and Pendant's stock over the last 5 years (given below). Assuming the risk free rate is 3.3% and you expect the market risk premium to be 3.1% over your investment horizon, what is Pendant's beta and expected return? (10.5 points total) Beta Expected 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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Transcribed Image Text:B - You are a little skeptical of the valuation you have calculated based on the competitors' PE
ratios, so you decide to calculate a PE ratio based on Pendant's ROE and retention ratio. First,
you need to figure out what an appropriate rate of return should be for holding Pendant's stock.
You have collected monthly data for the excess return of the market and Pendant's stock over
the last 5 years (given below). Assuming the risk free rate is 3.3% and you expect the market risk
premium to be 3.1% over your investment horizon, what is Pendant's beta and expected return?
(10.5 points total)
Beta
Expected Return
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