Consider a stock that has a Beta of 0.85. You expect the long-term return on the market to be 9.75% and the current return on Treasury Bonds is 2.50%. Use the Capital Asset Pricing Model to determine what should be the return on this stock? 8.66% 7.92% 10.79% 6.34%

Consider a stock that has a Beta of 0.85. You expect the long-term return on the market to be 9.75% and the current return on Treasury Bonds is 2.50%. Use the Capital Asset Pricing Model to determine what should be the return on this stock? 8.66% 7.92% 10.79% 6.34%

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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You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Stock Beta Current Expected Expected Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 1 of 2) Based on the required rate of return estimated with the CAPM and your expected returns based on prices and dividends, select an investment strategy for each stock: Stock U Stock N [Choose ] [Choose ] Stock O [Choose ]
. AmDa’s common stock has a beta of 1.4. The market risk premium is 5% and the riskfree rate is 2%. What is the required rate of return on this stock according to CAPM?
Suppose your company has an equity beta of .62 and the current risk-free rate is 4.1%. If the expected market risk premium is 9.6%, what is your cost of equity capital?
The expected rate of return on a market portfolio is 7 percent. The riskless rate of interest is 4 percent. The beta of a company is 1.37. What is the required rate of return on this company's common equity?
Suppose the risk free rate is 2, 32%, the expected return of the market portfolio is 5, 64% and the beta of stock X-Bros S. A. is 1. 10. What is the expected cost of equity of X-Bros S. A. (in percent)?
Using CAPM to determine the expected rate of return for risky assets, consider the following example stocks, assuming that you have already compute the betas Stock Beta A 0.70 B 1.00 C 1.15 D 1.40 E -0.30 Assume that we expect the economy’s RFR to be 5 percent (0.05) and the expected return on the market portfolio (E(RM)) to be 9 percent (0.09), 1, what would this imply? With these inputs, what would the be the following required rate of returns for these five stocks, show the formula for each in your calculations.
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Investment Beta Analyst's Estimated Return Stock X 2.3 15.5% Stock Y 1.2 13.6% Market Portfolio 1.0 11.5% Risk-free rate 4.0% What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?
What is the required rate of return on a stock with a beta of 1.2, when the risk-free rate is 3.6% and the rate on the stock market is 14.4%
Stock A's stock has a beta of 1.30, and its required return is 12.00%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) a. 8.76% b. 8.98% c. 9.21% d. 9.44% e. 9.68%
You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock Investment Beta A $218,000 1.50 B 327,000 0.60 C 545,000 1.18 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 17 percent and that the risk-free rate is 8 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) Beta of the portfolio Expected rate of return %
suppose a risk free rate is 6% and the market premium is 7%. D1 is 1.25 per share and stock beta is 1.15. What is the required return?
Consider a CAPM economy. The risk free rate (rf ) is 4% and the expected market return (rM )is 10%. (a) Stock 1: β = 0.90. Compute the expected return of stock 1. (b) Stock 2: β = 1.1. Compute the expected return of stock 2. (c) Portfolio 1: The proportions invested in stock 1, stock 2, and risk free asset are 30%, 30%,and 40%, respectively. Compute the beta and expected return of portfolio 1. (d) Portfolio 2: The proportions invested in stock 1, stock 2, and risk free asset are 50%, 60%,and -10%, respectively. Compute the beta and expected return of portfolio 2.

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