me the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is 11% as the expected return on the market. Use the SML equation (i.e., CAPM) to calculate the two companies' required return
me the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is 11% as the expected return on the market. Use the SML equation (i.e., CAPM) to calculate the two companies' required return
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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Bartman Industries' and Reynolds Inc.'s stock prices and dividends, along with the Winslow 5000 Index, are shown here for the period 2015-2020. The Winslow 5000 data are adjusted to include dividends.
| Data as given in the problem are shown below: | ||||||||
| Bartman Industries | Reynolds Inc. | Winslow 5000 | ||||||
| Year | Stock Price | Dividend | Holding period return | Stock Price | Dividend | Holding period return | Includes Divs. | Holding period return |
| 2020 | $17.25 | $1.15 | 24.75% | $48.75 | $3.00 | -1.05% | 11,663.98 | 32.76% |
| 2019 | 14.75 | 1.06 | -4.18% | 52.30 | 2.90 | 13.23% | 8,785.70 | 1.22% |
| 2018 | 16.50 | 1.00 | 62.79% | 48.75 | 2.75 | -10.04% | 8,679.98 | 34.91% |
| 2017 | 10.75 | 0.95 | 2.90% | 57.25 | 2.50 | -0.42% | 6,434.03 | 14.85% |
| 2016 | 11.37 | 0.90 | 61.02% | 60.00 | 2.25 | 11.66% | 5,602.28 | 19.05% |
| 2015 | 7.62 | 55.75 | 4,705.97 |
Assume the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is 11% as the expected return on the market. Use the SML equation (i.e.,
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