Monkey corporation want to buy stocks in the Goose company, Monkey financlal manager says that the stock fair price is 50 dollars if the treasury bill rate is 0.08 and the covariance between the stock and the market is 0.0034 and the standard deviation of the market is 0.055 the market return is 0.15what is the what is the requirec rate of return ?

Monkey corporation want to buy stocks in the Goose company, Monkey financlal manager says that the stock fair price is 50 dollars if the treasury bill rate is 0.08 and the covariance between the stock and the market is 0.0034 and the standard deviation of the market is 0.055 the market return is 0.15what is the what is the requirec rate of return ?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

See similar textbooks

Related questions

Q: You are thinking of buying a stock priced at $106 per share. Assume that the risk-free rate is about…

A: according to CAPM: Rstock =rf+β×rm-rfwhere,rf= risk free raterm= market return

Q: lory Tech Corporation's stock has a required return of 13.00 %, the risk- free rate is 5.00%, and…

A: CAPME(ri) = Rf + Bi * (E(Rm) - Rf)E(ri) = Expected returnRf = Risk free rateBi = BetaE(Rm) =…

Q: Please correct answer and step by step solution

A: Step 1 Step 2 Step 3 : Step 4

Q: AmDa’s common stock has a beta of 1.4. The market risk premium is 5% and the riskfree rate is 2%.…

A: Given:Beta of AmDa's =1.4Market risk premium = 5%Risk free rate = 2%We have to compute the required…

Q: Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 9.00%, and the risk-free…

A: OPTION A is correct 8.12%

Q: FIN300 Inc's stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the…

A: Capital Asset Pricing Model (Expected Return) = R* + (Rm-R*)B Where Expected Rate of Return = 12.25%…

Q: A share of stock with a beta of 0.76 now sells for $51. Investors expect the stock to pay a year-end…

Q: (Capital asset pricing model) Grace Corporation is considering the following investments. The…

A: The Capital Asset Pricing Model is used to determine the expected return of security. As per Capital…

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

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Please help with this question with full working out.
You live in a world where assets are priced by the CAPM. The following information is given to you regarding stock X. The expected payoff from the stock X=£105.00 Expected return of stock X = 18% Risk-free rate =5% Market Risk Premium = 9% Assume there are no other changes, except that the correlation between the returns of Stock X and the market becomes twice what it is currently. How would this change affect the current price of Stock X? Explain why the change of the correlation causes the observed change in the stock price. [hint: Provide a risk-based explanation]
(a) An investor is considering an investment in XYZ stock. The risk-free rate of return is 0.45%, the market risk premium is 6.0% and XYZ’s beta is 0.81. Based on the CAPM, what is the investor’s required rate of return on the stock? Show all calculations. (b) XYZ’s stock is currently selling at a price of $42 a share. The investor strongly believes that a year from now the stock will be worth $43 a share. The investor also expects that XYZ will pay a dividend of $0.90 share during the coming year. If the investor buys the stock today and holds if for a year, what will her holding period return for the year be if her predictions come true? Show your work.
You're considering purchasing Proctor and Gamble Stock. Suppose the risk-free interest rate is 5.0% and the stock market's expected return is 13.50%. Also, suppose that if the stock market's value rises by 1%, stock in Proctor and Gamble typically rises by 1%. a. What is the percentage of Proctor and Gamble's risk premium? c. What is the correct discount rate to use according to the Capital Asset Pricing Model (CAPM) when analyzing the present value of future cash flows from this stock?
← You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is about 4.03% and the market risk premium is 6.48%. If you think the stock will rise to $118.76 per share by the end of the year, at which time it will pay a $3.48 dividend, what beta would it need to have for this expectation to be consistent with the CAPM? The beta is (Round to two decimal places.) ...
The rate of return on the market stock index is 13 percent. The rate of return on a risk-freebank account is 1%. The B (beta) of stock XYZ is 1.5. Use the data to answer the questionsbelow.a. What is the market risk premium? Show your work.b. What is the cost of equity for XYZ? Show your work.c. What is the stock XYZ risk premium? Show your work.d. Draw the graph of the Security Market Line and show the stock of XYZ on the graph.The end-of-year dividend on stock ABC is expected to be $0.8. The growth rate of dividend isexpected to be 5 percent for ever. The current price of the ABC stock is $10. Use the data toanswer the questions below.e. What is the cost of equity for stock ABC? Show your work.f. Suppose stock KLM has the same end-of-year dividend, dividend growth rate andprice as stock ABC, but the risk of KLM stock is much greater than of the ABC stock.What is your estimate of the cost of equity of stock KLM using the method at part e?Do you agree with the valuation of the cost of…
An antitrust case has lead to you having to calculate a fair return (using the CAPM) for RadioEthiopea common stock. The market has a volatility of 18.00%, while the shares have a volatility of 33.00%. The correlation between the two sets of returns is -0.10. The risk free rate is 1.90%, while the expected return on the market is 4.30%. What is the fair return for RadioEthiopea common stock? 1.11% 1.77% 1.46% 1.66%
You own $13,020 of Denny's Corporation stock that has a beta of 3.06. You also own $27,125 of Qwest Communications (beta = 1.78) and $14,105 of Southwest Airlines (beta = 0.72). Assume that the market return will be 10.0 percent and the risk- free rate is 6.0 percent. What is the market risk premium? Market risk premium % What is the risk premium of each stock? Note: Round your answers to 2 decimal places. Denny's risk premium % Qwest's risk premium Southwest Airlines' risk premium % % What is the risk premium of the portfolio? Note: Do not round intermediate calculations and round your final answer to 2 decimal places.
Please help answer this question.
You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 2 of 2) What is the required rate of return (based on the CAPM) for an equally weighted portfolio of the three stocks? (Enter your answer as a percentage, i.e., "10.25" for 10.25 percent
can you do the question b please
The risk-free rate of return is 2 percent, and the expected return on the market is 6.1 percent. Stock A has a beta coefficient of 1.3, an earnings and dividend growth rate of 5 percent, and a current dividend of $1.50 a share. Do not round intermediate calculations. Round your answers to the nearest cent. a. What should be the market price of the stock? $ b. If the current market price of the stock is $81.00, what should you do? The stock -Select- ✓ be purchased. c. If the expected return on the market rises to 14.1 percent and the other variables remain constant, what will be the value of the stock? $ d. If the risk-free return rises to 5 percent and the return on the market rises to 14.3 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.2 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- ✓the required return and…