Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to increase by 30.0%. In addition, expected inflation ncreases by 0.80 percentage points. What is the stock's new required rate of return? Do not round your intermediate calculations. Initial beta Initial required return (rs) Market risk premium, RPM Percentage increase in beta Increase in inflation premium, IP O a. 12.26% Ob. 12.80% OC. 13.04% Od. 12.00% O e. 11.00% 1.00 10.20% 6.00% 30.00% 0.80%

Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to increase by 30.0%. In addition, expected inflation ncreases by 0.80 percentage points. What is the stock's new required rate of return? Do not round your intermediate calculations. Initial beta Initial required return (rs) Market risk premium, RPM Percentage increase in beta Increase in inflation premium, IP O a. 12.26% Ob. 12.80% OC. 13.04% Od. 12.00% O e. 11.00% 1.00 10.20% 6.00% 30.00% 0.80%

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Description: Data for Dana Industries is shown below. Now Dana acquires some risky assets that cause its beta to increase by 30.0%. In addition, expected inflationincreases by 0.80 percentage points. What is the stock's new required rate of return? Do not round

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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Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.15 20 % Normal 0.55 9 % Weak 0.30 -5 % What is the stock's expected return? Do not round intermediate calculations. Round your answer to two decimal places.
Consider the following scenario analysis: Rate of Return Stocks Scenario Bonds Probability 0.20 Recession -6% 18% Normal economy 0.50 19% 11% Boom 0.30 26% 8% a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? O No Ⓒ Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.) Expected Rate of Standard Deviation Return Stocks 16.1 % % Bonds 9.7 % % c. Which investment would you prefer? Bond Which investment would you prefer? Stock
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. Current Expected Expected Stock Beta 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 2 of 2) What is the required rate of return (based on the CAPM) for an equally weighted portfolio of the three stocks? (Enter your answer as a percentage, i.e., "10.25" for 10.25 percent
Zacher Co.'s stock has a beta of 1.28, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Select the correct answer. a. 10.09% b. 10.49% c. 11.29% d. 10.89% e. 11.69%
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Consider the following information about Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Recession Economy Stock I Stock Il .25 .06 -.30 Normal .45 .18 .06 Irrational exuberance .30 .12 .45 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock II's return is stock's systematic risk/beta, Stock percent, and the Stock I beta is percent, and the Stock II beta is . The standar Therefore, based on the is "riskier".
You have assigned the following values to these three firms: Upcoming Dividend $0.50 Estee Lauder Kimco Realty Nordstrom Price $36.00 75.00 11.00 1.58 2.00 Estee Lauder required return Kimco Realty required return Nordstrom required return Assume that the market portfolio will earn 17.20 percent and the risk-free rate is 8.20 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPM Growth 11.40% 17.00 8.80 % % % Beta 0.92 1.28 1.24 Constant-Growth Model % % %
11. Changesto the security market line The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. (Tool tip: Mouse over the points in the graph to see their coordinates.) REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 8.0 4.0 O Do 0.5 ■ 1.0 RISK (Beta) 1.5 2.0 (?)
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Suppose the common stock of United Industries has a beta of 0.83 and an expected return of 8.7 percent. The risk-free rate of return is 3.4 percent while the inflation rate is 2.8 percent. What is the expected market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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