gan's Pumpkins Co. is a distributor of excellent specialty pumpkins. In fact, the firm's spokesperson describes them as smashing! What is Corgan's required ected) return if its beta is 2.2, the risk-free rate is 4.9%, and the expected return on the market portfolio is 10.5%. Assume the CAPM/SML is correct. ENTE R ANSWER AS A PERCENTAGE WITH ONE DECIMAL PLACE AND NO % SIGN (e.g., if your answer is 5.2%, enter 5.2).

gan's Pumpkins Co. is a distributor of excellent specialty pumpkins. In fact, the firm's spokesperson describes them as smashing! What is Corgan's required ected) return if its beta is 2.2, the risk-free rate is 4.9%, and the expected return on the market portfolio is 10.5%. Assume the CAPM/SML is correct. ENTE R ANSWER AS A PERCENTAGE WITH ONE DECIMAL PLACE AND NO % SIGN (e.g., if your answer is 5.2%, enter 5.2).

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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2 (CAPM and expected returns) a. Given the following holding-period returns, compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 0.83 and the risk-free rate is 9 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? a. Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is %. (Round to two decimal places.) The standard deviation for the Zemin Corporation is %. (Round to two decimal places.) Given the…
Suppose the market risk premium is 5% and the risk-free interest rate is 5%. Using the data in the table here, a. Starbucks's stock. b. Hormel's stock. c. Avis Budget Group's stock. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Hormel 0.16 Avis Budget Group 2.55 Beta Starbucks 1.05 X " calculate the expected return of investing in
Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 36.5%, and the current dividend yield is 8.50%. Its beta is 1.33, the market risk premium is 14.50%, and the risk-free rate is 2.70%. a. Use the CAPM to estimate the firm's cost of equity. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. Now use the constant growth model to estimate the cost of equity. Note: Do not round intermediate calculations. Enter your answer as a whole percent. c. Which of the two estimates is more reasonable? a. Cost of equity % % c. Which of the two estimates is more reasonable? b. Cost of equity
Bunkhouse Electronics is a recently incorporated firm that makes electronic entertainment systems. Its earnings and dividends have been growing at a rate of 38.5%, and the current dividend yield is 10.50%. Its beta is 1.37, the market risk premium is 16.50%, and the risk-free rate is 2.30%. a. Use the CAPM to estimate the firm’s cost of equity. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. Now use the constant growth model to estimate the cost of equity. (Do not round intermediate calculations. Enter your answer as a whole percent.)
Suppose that the borrowing rate that your client faces is 8% Assume that the equity market index has an expected return of 12% and standard deviation of 28%, that ry - What is the range of risk aversion for which a client will neither borrow nor lend, that is, for which y-1? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. y=1 for SAS
GE, Inc has a beta of -0,45. When S&P500 index increases by 8% and the T-bill rate is 1%. What is the expected return of the company? Please use CAPM to solve.
Jersey Jewel Mining has a beta coefficient of 1.1. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $5.40 dividend that is growing at 4 percent annually. Do not round intermediate calculations. a. What is the required return for JJM? Round your answer to two decimal places. % b. Given the required return, what is the value of the stock? Round your answer to the nearest cent. $ c. If the stock is selling for $138, what should you do? The stock -Select- overvalued and -Select- ✓ be purchased. d. If the beta coefficient declines to 0.9, what is the new value of the stock? Round your answer to the nearest cent. $ e. If the price remains $138, what course of action should you take given the valuation in d? The stock is -Select- and -Select- ✓ be purchased.
Jersey Jewel Mining has a beta coefficient of 1.3. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $5.30 dividend that is growing at 6 percent annually. Do not round intermediate calculations. What is the required return for JJM? Round your answer to two decimal places. % Given the required return, what is the value of the stock? Round your answer to the nearest cent. $ If the stock is selling for $166, what should you do? The stock -Select-isis notItem 3 overvalued and -Select-shouldshould notItem 4 be purchased. If the beta coefficient declines to 1.2, what is the new value of the stock? Round your answer to the nearest cent. $ If the price remains $166, what course of action should you take given the valuation in d? The stock is -Select-overvaluedundervaluedItem 6 and -Select-shouldshould notItem 7 be purchased.
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JaiLai Cos. stock has a beta of 0.6, the current risk-free rate is 6.0 percent, and the expected return on the market is 10 percent.What is JaiLai’s cost of equity? (Round your answer to 2 decimal places.)
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 % % %

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