Calculate the expected return and variance on 100 shares of AAPL with and without a zero interest margin loan for 50% margin. The stock can either move up 3% or down 1% with equal probability. Show all work.

Q: Assume that the risk-free rate is 2.5% and the required return on the market is 8%. What is the…

A: According to capital assets pricing model, The expected return on equity stock is calculated as…

Q: Suppose that Company ABC has a beta of .92.  The expected return on the market is 13% and the market…

A: Market return (Rm) = 0.13Market risk premium (Mp) = 0.102Beta of the stock (b) = 0.92Expected return…

Q: Hastings Entertainment has a beta of 0.41. If the market return is expected to be 16.90 percent and…

A: As per CAPM model, Required rate of return = Rf + Beta (Rm- Rf) Rm= Market rate of return Rf= Risk…

Q: Suppose a zero dividend payment stock is selling for K48 per share.The standard deviation of the…

A: Stock price is K 48 per share Strike price is 50 per share Risk free rate is 8% Standard deviation…

Q: A company has a beta of  .59. If the market return is expected to be 12.9 percent and the risk-free…

A: To solve the question, we need to use the formula of capital asset pricing model (CAPM), it shows…

Q: The risk-free return is 5%, Company x has a beta of 1.5 and an expected return of 20%. Calculate the…

A: Solution:- Capital Asset Pricing Model (CAPM) is an equity model which calculates the required rate…

Q: Consider the three calls from the previous problem expiring in T = 1 year. Suppose that the premium…

A: > Please follow below image for detailed sultion:

Q: Show work/formulas used. Calculate the required return for new AND existing equity if the stock…

A: The cost of existing and new equity can be determined by using the constant dividend growth rate…

Q: You invest $10,000 in a long position in a stock priced at $44 per share. Intial margin is 70% and…

A: A margin call is made by the broker to the investor asking them to deposit an extra amount in their…

Q: The portfolio on the Capital Allocation Line (CAL) that has an expected return of 20% invests weight…

A: Risk and return are essential financial principles. The term “risk” refers to the uncertainty and…

Q: Given the following variables: S = $50, E = $45, T = 1 year, r = 2 %, and P = $5; if the call option…

A: Given, Stock price (S) = $50 Strike price (E) = $45 T = 1 year r = 2% Put price (P) = $5

Q: Moerdyk Company's stock has a beta of 1.5, the risk - free rate (rRFR) is 4%, and the market risk…

A: The objective of the question is to calculate the required rate of return for Moerdyk Company's…

Q: The monthly demand of you firm equals you I'd 26166 .The safety stocks level equals 1000 and lead…

A: Re-Order Point = Expected demand during lead time + Safety stock Or Re-Order Point = (Daily demand x…

Q: Consider the CAPM. The risk - free rate is 4%, and the expected return on the market is 15% .…

A: Risk-free Rate, Rf = 4%Beta = 1.2Expected return on market = 15%

Q: You are thinking of purchasing a cumulative, convertible preferred share with a stated dividend of…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: You have $50,000 to invest in three stocks. Let Ri be the random variable representing the annual…

A: Let's denote the proportion of the total investment in each stock as follows:x1 = proportion of…

Q: Company Q has earnings of $3.00 per share, a market price of $25, and a beta of 1.25. The risk-free…

A: Given the following information: Earnings per share: $3 per share Market price of share: $25 Beta:…

Q: what is the stock's predicted return

A: Market return is 10%return on the SMB portfolio (rSMB) is 2.0 return on the HML portfolio (rHML) is…

Q: Company XYZ has a CAPM beta of 1.5. The expected return on the market is 20% and the risk-free rate…

A: Expected return can be calculated by using CAPM equation given below Expected return =Risk free…

Q: in a one-period binomial model, assume that the current stock price is $100 and that it will rise by…

A: Value or price of a call option A call option provides its holder the right to buy stock at the…

Q: Over the next year, the stock market will either be a bull market or a bear market. The probability…

A: Sharpe ratio heps in determining the performance of a stock with respect to the risk free rate after…

Q: Suppose you have a portfolio worth $10000. Assuming normally distributed portfolio returns,…

A: Portfolio value=$10,000Expected return=24%Variance=22%Required:Value at Risk at 5% Dollar value=?

Q: (c) Hairul is considering to buy the ordinary shares of One Berhad and Two Berhad. The possible…

A: concept. 1 Expected return. In case the data is given with probabilities: The expected return of…

Q: A company stock has a 50% chance of producing a 30% return, a 25% chance of producing a 12% return,…

A: 50% Chance of 30% Return25% Chance of 12% Return25% Chance of -18% ReturnExpected Return =…

Q: The expected return on Share X is 15.75% while the risk-free rate of return is 7%. If the expected…

A: Expected return =Rf + beta * ( Rm- Rf) Rf = Risk free rate Rm =Expected return on market

Q: You are considering buying some share in The Wayne Coporation as part of your retirement account.…

A: Solution:-Capital Asset Pricing Model (CAPM) is a model which gives a formula to calculate the…

Q: Suppose an investor buys 20 share of a particular stock at R10 per share and sell them all a year…

A: Probability that price will go to 0 (Px) = 20% Probability that price will remain 10 (Py) = 50%…

Q: Consider a stock whose current price is $100 and volatility is 20% p.a. The stock is expected to pay…

A: An option is a type of financial instrument that is based on the value of underlying securities,…

Q: vests W0=$10000W0=$10000 on a stock. The monthly return RR follows a normal distribution with mean…

A: Value at risk is related to amount of investment that is at the risk.

Q: Suppose an investor buys 20 share of a particular stock at R10 per share and sell them all a year…

A: Total buying price = 20 * R 10 = R 200 There is a 0.2 probability that price will be 0 There is a…

Q: Majan stock has a required return of 20%. The expected market return is 15%, and the beta of Majan's…

A: Calculation of risk-free rate of return: Answer: Risk-free rate is 5%

Q: Suppose Firm 1 is 100% equity financed.  Firm 1 has a project available that offers a 10% return on…

A: Required return for the firm is calculated using following equation Required rate of return = Risk…

Q: equityholders at date 1? What kind of financial product has the same payoffs? Please describe the…

A: a)At date 1 ,two possible values are possible: 100*120%=120 or 100*90%=90 d=downmove=0.9 and upmove…

Q: (Computing rates of return) From the following price data, compute the annual rates of return for…

A: Rate of return = [(V1 - V0) / V0 ] X 100WhereV1= Current valueV0 = Previous value

Q: This question requires you to consider a three-asset portfolio valued at 10 million AUD. The…

A: Step 1:To address the question related to the three asset portfolio,we will need to go through a few…

Q: Diddy corp. has a beta of 1.3. The current risk-free rate is 3 percent and the expected return on…

A: Following details are given in the question for Diddy corp. : Beta of Stock = 1.3 Risk free rate =…

Q: The risk-free rate of return (r) is 2% and the expected market rate of return (rm) is 10%. The…

A: In this we have to calculate expected return using CAPM model.

Q: Assume the one period binomial model with initial share price £400, up and down factors u = 1.25, d…

A: The binomial distribution is a discrete probability distribution that characterizes the number of…

Q: You looked up the market risk return to be 12%. The risk-free rate of return is 2%, and General…

A: Solution: Given, Market risk return = Market return = Rm = 12% Risk free rate = Rf = 2% Beta = 1.2…

Q: Please use Excel to evaluate the following three strategies: 1) short a straddle; 2) short a…

A: Before we start with the calculations, let's understand the three strategies:Short a Straddle: This…

Q: Consider a stock where the current price is Ksh.120, the expected return is 20% per annum, and the…

A: The question is based on the concept of  probability distribution over a year in continuous…

Q: nsider a stock worth K12.50 that can go up or down by 15% per period. Assume a period process of…

A: Call options gives opportunity to buy the stock on expiration period but there is no obligation to…

Q: nvestors require a return of 14.15 percent on Industrial Industries stock and require a return of…

A: The required rate of return can be ascertained by using the Capital Asset Pricing Model (CAPM). The…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.