fCompany A has a beta of 0.70, while Company B's beta is 1.45. The required return on thestock market is 11.00%, and the risk-free rate is 2.25%. What is the difference betweenA's and B's required rates of return?O a. 4.30%O b. 4.71%O c. 5.01%O d. 5.06%

Step 1: To find the difference between Company A's and Company B's required rates of return, we will…

Answered: f Company A has a beta of 0.70, while…

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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A firm has a beta of 0.6. If the return on the market is 9% and the risk-free return is 2%, then what is the firm's required return? a. 4.22% b. 6.20% c. 7.40% d. 2.42%
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Dhofar Energy Services has a Beta = 0.93 The risk - free rate on a treasury bill is currently 4.4% and the cost of equity has 20.70%. What is the market return? Select one: a. 0.2193 b. 0.2634 c. 0.2039 d. 1.1753 e. All the given choices are not correct
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A company's stock has a beta of 1.20, the risk-free rate is 1.6%, and the market risk premium is 16%. What is the firm's required rate of return? Do not round your intermediate calculations.
What is the solution and the working
Assume the risk-free rate is 3% and the market return is 10%. Stock X Stock Y Stock Z Beta 0.65 0.90 Current price $13.50 $26.50 Correlation (X/Y) = 0.35 (X/Z) = 0 (Y/Z) = 0.55 a) Most equity research concludes that Stock X is much more volatile compared to the “market". On average, Stock X's volatility is about 1.5 times that of the stock market. Based on CAPM, estimate the required return of Stock X. b) It is expected that Stock Y will pay a per share dividend of $0.43 one year from now, and the dividend will increase by an average of 6% per year in the foreseeable future. According to CAPM, is Stock Y overvalued or undervalued? c) Assume that Stock Z is fairly-priced today. Stock Z has just paid a dividend of $2. It is expected that its dividend will increase by 50% in the first year, 0% in the second year, 10% in the third year, and starting from the fourth year, the company will maintain the dividend growth rate to be 5% forever. How much would Stock Z be worth today if its…
Dhofar Energy Services has a Beta = 1.04 The risk-free rate on a treasury bill is currently 4.4% and the cost of equity has 20.70%. What is the market return? Select one: a. 0.2007 b. 0.2088 c. 0.2402 d. All the given choices are not correct e. 1.1567
1

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f Company A has a beta of 0.70, while Company B's beta is 1.45. The required return on the stock market is 11.00%, and the risk-free rate is 2.25%. What is the difference between A's and B's required rates of return? O a. 4.30% O b. 4.71% O c. 5.01% O d. 5.06%