D1 = $1, g = 6.00%, β = 2, market risk premium = 5 %, and risk free rate = 5 %.  Find stock price (Hint: r = risk free rate + beta * market risk premium = 5% + 2*5%) $11.11 $8.93 $10.08 $9.56

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A: Required Rate is the least return that is anticipated by an investor on any security. It is…

Q: Suppose TRF = 5%, TM12%, and b = 2, what is r, the required rate of return on Stock i? 12% 7% 19% 5%…

A: According to Capital Asset Pricing model ,Ri = Rf + [b * (Rm-Rf) ]whereRi = Required rate of return…

Q: Review the following market information: Current Stock Market Return                    11.25%…

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Q: Q2: By using CAPM calculate the required return on equity if Risk free rate is 18%, Expected Market…

A: Given Information: Risk-free Rate=18% Beta=1.5 Expected Market Return=20%

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A: The given problem can be solved using Capital asset pricing model.

Q: Magnesium Corporation has a policy of retaining 75% of its income. The growth rate of the company…

A: " Hi, Thanks for the Question. Since you asked multiple sub parts question, we will answer first…

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A: Risk free rate = 7% Market risk premium = 2%

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A: The rate of return refers to the minimum return earned by the investor while investing in the stocks…

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A: Sharp ratio Sharp ratio is calculated as shown below.          Sharp ratio=Portfolio return-Risk…

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A: Calculation of expected return Probability Stock A Stock B Return Expected return Return…

Q: If D0 = $2.25, g (which is constant) = 3.6%, and P0 = $50.00, then what is the stock's expected…

A: Cost of equity capital is also known as KE. It is the cost which is incurred by the company for…

Q: Review the following market information: Current Stock Market Return                    11.25%…

A: The required return is the minimum return an investor expects from a stock. It is calculated by the…

Q: None

A: The true statements about the investment opportunity set analysis are: I. The expected return,…

Q: Security Sinle-index Model Estimates X Y 2 3 1 Bi 1.5 1.3 0.8 o(e.) 3% 1% 2% Given the data for…

A: Expected Return on each security: E_X = alpha_i + Beta_i*E(r_m) = 2 + 1.5*0.08 = 2.12% Similarly,…

Q: What is the expected return for the following portfolio? (State your answer in percent with two…

A: The question is related to Expected Return of Portfolio. The expected return of Portfolio is…

Q: 1. If the required rate of return is 5 percent and the stock pays a fixed S5 dividend, its value is…

A: Value of stock = Dividend / Required Rate of return Value of stock = 5 / 5% Value of stock =100…

Q: Given Investment E(R) σ Stock A $15,000 10% 10% Stock B $5,000 5% 25% Total $20,000 and Corr(AB) =…

A: The formula for the covariance of two random variables X and Y in relation to their correlation and…

Q: Use the information below to answer the question 52WHi 52WLo Ticker Div Yield% P/E Vol 00s High Low…

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Q: Required: Calculate expected intrinsic price of stock

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Q: You are given the following information for DEF Company. What is the stock's beta? • Expected return…

A: ER = expected return ER = RF +;BETA ( RM - RF)  RF = RISK FREE RATE  RM = RETURN OF MARKET  RM - RF…

Q: uppose that a portfolio consists of the following stocks: he risk-free rate (f) is 5 percent and the…

A: Stocks refer to an amount that are being invested by the investors in the portfolio for earning the…

Q: D1 = $0.75, rs = 10.5%, g = 6.4%.  Calculate the stock price. $18.39 $18.84 $18.29 $17.75

A: P0 =D1 /(ke-g)

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A: Risk free rate = 0.7% Market return = 5.55% Beta = 0.53

Q: Year     AT&T Stock Returns       Market Index Returns  1                         8…

A: Equation for stock return based on market return is constructed in this format: Y = mx +c Y is stock…

Q: Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7, respectively.…

A: The bull spread would use a strike price of $35 and cost C1 $7 by writing put option and buy put…

Q: Assume CAPM is a correct model. Stock A's required rate of return is 12% and Stock B's required rate…

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A: Correlation refers to determining the connection between two variables by analyzing how the variable…

Q: 11,12,13,14 and 15 please

A: Comment -  Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the…

Q: BETA COEFFICIENTS AND RATES OF RETURN You are given the following set of data: Historical Rates of…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

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A: Capital Asset Pricing Model(CAPM) is method used to compute minimum required rate that stock must…

Q: A stock is selling for R61, a 6-month put at R60 is selling for R1.70, a 6-month call at R60 is…

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Q: 28 Assume the following: Stock Price (S) Strike Price (X) Volatility (6) Risk-free Rate $12.00…

A: The given problem relates to Black Scholes Model.

Q: The return of stock B is __% The volatility of stock A is __% The volatility of stock B is __%

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Q: The risk-free rate is 2.59% and the market risk premium is 7.64%. A stock with a β of 1.28 will have…

A: CAPM stands for Capital Asset Pricing Model which indicates the relation between the expected…

Q: Suppose rRF = 9%, rM = 14%, and bi = 1.3. %3D · What is ri, the required rate of return on Stock i?

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A: Here, Probability of Recession is 70% Probability of Normal is 20% Probability of Boom is 10%

Q: E(rs) 10 eight in stocks WS -0.1 0.0 0.1 0.2 0.3 0.4 0.6 0.8 1.0 1.1 E(1 B) 5 Portfolio expected…

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Q: Covariance with Mean Return Stock AOL Microsoft Intel AOL .002 .001 15% Microsoft .001 .002 .001 12…

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Q: eBook Ippose TRF = 3%, TM = 9%, and b; = 1.4. a. What is r, the required rate of return on Stock i?…

A: Risk-free rate =3%Rm=9%Beta = 1.4

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Q: find the stock return

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Q: A stock has a required return of 11%, the risk-free rate is 7%, and the market risk premium is 4%.…

A: Required return = risk free rate + beta*market risk premium 11 = 4 + beta*7

Q: Review the following market information: Current Stock Market Return                    11.25%…

A: As per CAPM, Required Return = Risk free Rate + Beta * (Market return - risk free rate) where, Risk…

Q: You have a portfolio which consists of 75% of stock 1 (o^2 = 0.16) and 25% of stock 2 (o^2 = 0.09).…

A: Return on the stock is based on the risk free rate, market return and the risk associated with the…

Q: D0 = $2, g = 5%, P0 = $30, find the stock return 10% 11% 12% 13%

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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.