he preferred stock of Dallas Platinum Exchange has a par value of $31 and pays a 7% dividend rate per year. You calculated a beta of 0.51 for the stock. The risk-free ate is 4.11% and the market return is 9.2%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock? DO NOT ENTER THE $ SIGN. ALSO, NTER YOUR ANSWER AS A POSITIVE NUMBER. SET YOUR CALCULATOR TO 4 DECIMAL PLACES AND ROUND TO TWO DECIMAL PLACES AT THE END, i.e. F YOUR ANSWER IS 33.4348 ENTER IT AS 33.48 ONLY
he preferred stock of Dallas Platinum Exchange has a par value of $31 and pays a 7% dividend rate per year. You calculated a beta of 0.51 for the stock. The risk-free ate is 4.11% and the market return is 9.2%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock? DO NOT ENTER THE $ SIGN. ALSO, NTER YOUR ANSWER AS A POSITIVE NUMBER. SET YOUR CALCULATOR TO 4 DECIMAL PLACES AND ROUND TO TWO DECIMAL PLACES AT THE END, i.e. F YOUR ANSWER IS 33.4348 ENTER IT AS 33.48 ONLY
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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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:The preferred stock of Dallas Platinum Exchange has a par value of $31 and pays a 7% dividend rate per year. You calculated a beta of 0.51 for the stock. The risk-free
rate is 4.11% and the market return is 9.2%. Assuming that CAPM holds, what is the intrinsic value of this preferred stock? DO NOT ENTER THE $ SIGN. ALSO,
ENTER YOUR ANSWER AS A POSITIVE NUMBER. SET YOUR CALCULATOR TO 4 DECIMAL PLACES AND ROUND TO TWO DECIMAL PLACES AT THE END, i.e.
IF YOUR ANSWER IS 33.4348 ENTER IT AS 33.48 ONLY
Question 4
Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled "Expected Return"). You have
estimated that the risk-free rate is 5% and the return to the market will be 12%. Assuming that CAPM is correct, which stock should you purchase?
O Nathan's Bakeries
O Z-man Electronics
O O
O All of the stocks
OO
O Anderson, Inc.
O Delta Vanlines
Firm
Beta Expected
Return
Anderson, Inc. 0.90 10.5%
Delta Vanlines 1.24 13.0%
Nathan's
1.50 16.0%
Bakeries
Z-man
Electronics
2.15 19.0%
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