Calculate the cost of equity capital using CAPM if the risk - free rate of interest is 4per cent, the return on the market portfolio is 8 per cent, the beta of the firm'sassets is .8 and the and beta of equity is 1.2. Provide your answer as a percentageto two decimal places (15.32% should be entered as 15.32). Do not enter the %sign

The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between systematic…

Answered: Calculate the cost of equity capital…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Below, inputs have been arrived for the XYZ company. Using CAPM calculate its cost of equity. (Observe 2 decimal places)
You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%
Can you answer all the question 9,10,11
Using the equity asset valuation model (CAPM) equation, determine the required return for the shares of the following companies, if the market return is 7.50% (Rm = 7.50%) and the risk-free asset return is 1.25% (RF = 1.25%). You must show all counts. Stock Beta SKT 0.65 COST 0.90 SU 1.42 AMZN 1.57 V 0.94
Given correct answer financial accounting
Provide answer financial accounting
QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…
The risk-free rate is 3%, the market risk premium (MRP) is 8%, and the Beta of Lotsa Dough common stock is 0.9. What is LotsaDough's cost of common equity using the SML/CAPM approach? Group of answer choices 7.5% 10.2% 13.7% 15.1%
1. You estimate the Fama-French 3-factor model for the two stocks, A and B, and find the following coefficients. You also estimate risk premiums for each factor. Calculate the cost of equity capital (i.e., expected rate of return) for each company using the 3-factor APT model. The risk-free rate is 4%. Stock Mkt A B Risk premiums 1.1 1.0 5% SMB -1.2 -2.0 HML -1.0 -1.5 3%
Use the following forecasted financials: (See pictures. Certain cells were left blank on prupose) b) Use the CAPM model to derive the cost of equity capital. Assume beta equals 1.09, the risk-free rate is 1.62%, and the market risk premium is 4.72%. a)Calculate residual income for 2021 and 2022. c) Calculate the present value of residual income for 2024 and 2025.
Capital Asset Pricing Model The market portfolio has an excess return of 8% and volatility of 15%. The risk free rate is 5%. What is the minimum required return for a stock that has a volatility of 27% and a market correlation of 0.39. (Your answer will be a percentage. Enter your answer as a whole number with two decimals. E.g. if your answer is 12.345%, enter 12.34.)
Can you show how this is done

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