Furniture Inc. has a beta coefficient of 0.7 and a required rate of return of 15%. The market risk premium is currently 5%.If the inflation premium increases by 2%, and Furniture Inc. acquires new assets that increase its beta by 50%,what will be Furniture Inc.'s new required rate of return?14.50%а.b.22.85%С.18.75%d.15.35%Plastic Inc.'sstock has an estimated beta of 2 with arequired rate of return is 12%. Paper Inc.'s stock has a beta of 1, andthe risk-free rate is 2%. Determine the required rate of return on Paper Inc.'s stock?7.0%а.b. 8.4%c. 10.0%d. 11.5%Company K has a beta of 1.6, while Company L's beta is 0.7. The risk-free rate is 7%, and current market premium is 5%.Currently, the expected rate of inflation built into the risk-free rate rises by 1%, the real risk-free rate remainsconstant, and the required return on the market rises to 14%. There is no change in the betas of both company.When these changes occurs, by how much will the required return on Stock K exceed the required return of StockL?а. 4.20%b. 4.82%С.5.40%d. 5.50%

We need to use CAPM to calculate required rate of return. The equation is Required rate of return…

Answered: Furniture Inc. has a beta coefficient…

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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7. The firm expects earnings and dividends to grow at a rate of 25% for the next 4 years, after the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, Do, was P 1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock? a. P 26.77 c. P 27.89 f. P42.35 b. P 29.05 d. P 30.21 8. The firm's last dividend was P 1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required return (r.) is 12%. What is the best estimate of the current stock price? e. P31.42
What is the no-arbitrage forward price of a 120-day forward on a company now trading at $32.5 with a dividend of $0.50 in 20 days, $0.50 in 90 days, and $0.67 in 190 days, if the yield curve is flat, and the annual risk-free rate is 5.38%? $32.5 $32.0554 $31.50785 $0.99215
6. XYZ has a selling price of 400. If its selling price is expected to decline at a rate 10% per annum due to obsolescence, what will be its selling price after 5 yrs? A. 213.10 B.200.00 C.249.50 D.236.20
You Answered orrect Answer A company is promising a coupon payment of $46 in 2.03 years. A risk free government bond of the same maturity is yielding 1.66% per year. The credit spread for the promised payment by the company is 1.24% per year. Both the yield and the spread are stated on a continuously compounded basis. What is the present value of the expected loss on the promised payment? 1.11 margin of error +/-50
If the 10 year government bond rate is 2.78% and the long term return on the market as proxied by the ASX is 5.85%, assuming the beta for WBC is 1.26 and for CBA is 1.23, use the Capital Asset Pricing Model (CAPM) to find the expected returns for WBC and CBA.
Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5%, and IR 4.0%. A stock with a beta of 2.1 on IP and 1.4 on IR currently is expected to provide a rate of return of 18% . If industrial production actually grows by 6%, while the inflation rate turns out to be 5.8%, what is your revised estimate of the expected rate of return on the stock? Note: Do not round intermediate calculations. Round your answer to 1 decimal place.
Can you explain why the inflationary enviroment gives a higher incoem for shareholders in question C. The solution is also uploaded. Can you help explain it better
Equity holders’ investment in the firm is K100 million, and the beta of the equity is 0.6. if the T-bill rate 6 %, and the market risk premium is 8 %. What would be a fair annual profit?
Data for Solo Corporation is shown below. Now Solo has acquired some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return? Hint: Use the Capital Asset Pricing model equation. Briefly discuss your result. Market Beta is 1.00Initial required return (rs) 10.20%The market risk premium, RPM 6.00%Percentage increase in beta 30.00%Increase in inflation premium, IP 2.00%
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The risk free rate of return is 7% the average market return is 11% A) what will be the return rate expected from a share whose beta factor is o.9 B) what would be the expected value if it is expected to earn an annual dividend of 5.3c with no capital growth

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