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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Salalah Oil,has a cost of equity capital equal to 22.8 percent. If the risk-free rate of return is 10 percent and the expected return on the market is 18 percent, then what is the firm's beta. Select one: a. None of these b. 1.20 c. 1.25 d. 1.60
Okik Inc. has a beta coefficient of 1.0 and a required rate of return of 12 percent. The market risk premium is currently 8 percent. If the risk free rate increases by 2 percentage points, and Okik Inc. acquires new assets which increase its beta by 50 percent, what will be Okik’s new required rate of return? Give your answer in whole number, disregard the % sign e.g. 25% should be written as 25.
Here are data on two companies. The T-bill rate is 5.6% and the market risk premium is 7.1%. $1 Discount Store Everything $5 13% 18% Company Forecast return. Standard deviation of returns Beta Company $1 Discount Store Everything $5 Expected Return 14% 16% Required: What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.) % % 1.6 1.0
1. Arizona Rock, an all-equity firm, currently has a beta of 1.25. The risk-free rate, kRF, is 7 percent and kM is 14 percent. Suppose the firm sells 10 percent of its assets with beta equal to 1.25 and purchases the same proportion of new assets with a beta of 1.1. What will be the firm’s new overall required rate of return, and what rate of return must the new assets produce in order to leave the stock price unchanged? a. 15.645%; 15.645% b. 15.750%; 15.645% c. 14.750%; 15.750% d. 15.645%; 14.700% e. 15.750%; 14.700% 2. Dry Seal plans to issue bonds to expand operations. The bonds will have a par value of P1,000, a 10-year maturity, and a coupon interest rate of 9%, paid semiannually. Current market conditions are such that the bonds will be sold to net P937.79. What is the yield-to-maturity of these bonds? a. 10% b. 9% c. 11% d. 8% 3. You have just purchased a 15-year, P1,000 par value bond. The coupon rate on this bond is nine percent (9%) annually, with…
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The market capitalization rate for Admiral Motors Company is 12%. Its expected ROE is 9%. If the firm's plowback ratio is 50%, what will be its P/E ratio? Round your answer to one decimal place.
Dhofar Energy Services has a Beta = 0.69 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?
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4. Problem 8.11 (CAPM and Required Return) 8 Problem Walk-Through Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 5.0% rate of inflation in the future. The real risk-free rate is 1.0%, and the market risk premium is 5.0%. Mudd has a beta of 2.5, and its realized rate of return has averaged 14.5% over the past 5 years. Round your answer to two decimal places. BA % eBook
What is the risk premium for a company that has a yield rate of 6.12% when the risk-free rate is 4.78% ? Select one: a. None of these are correct. b. 10.90% c. 4.78% d. 6.12% e. 1.34%
Required: Suppose two factors are 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 6%. A stock with a beta of 1 on IP and 0.8 on IR currently is expected to provide a rate of return of 13%. If Industrial production actually grows by 6%, while the Inflation rate turns out to be 7%, what is your best guess for the rate of return on the stock? (Round your answer to 1 decimal place.) Rate of return
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