Please answer question 5 with parts A and B. Show work please. Consider the following multifactor (APT) model of security returns for a particular stock. Factor Risk Premium 7% Factor Inflation Industrial production Oil prices Expected rate of return a. If T-bills currently offer a 9% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Factor Beta 1.8 1.3 0.9 Factor Inflation Industrial production Oil prices Expected rate of return % b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Expected Value 5% 10 6 42 % Actual Value 3% 6 e

Please answer question 5 with parts A and B. Show work please. Consider the following multifactor (APT) model of security returns for a particular stock. Factor Risk Premium 7% Factor Inflation Industrial production Oil prices Expected rate of return a. If T-bills currently offer a 9% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Factor Beta 1.8 1.3 0.9 Factor Inflation Industrial production Oil prices Expected rate of return % b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Expected Value 5% 10 6 42 % Actual Value 3% 6 e

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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Suppose you observe the following situation: Security Ruby Pearl Expected Return 14.9% 21.0% Beta 0.70 2.13 A). If these two securities are correctly priced, calculate the risk-free rate. Round your answer to 4 decimal points. B). If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-A). Round your answer to 4 decimal points. C). If the current market data shows that the risk-free rate is 3.52 percent, are these securities fairly priced? Comment on your answer. Round your answers to 4 decimal points. D). Calculate the expected return and beta of an equally weighted portfolio of these two securities. Round your answers to 3 decimal points.
Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows: Correlation = -1 Stock A B Rate of return Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) Yes No X Answer is not complete. Expected Return 9% 13% % Standard Deviation 45% 55% b. Could the equilibrium rƒ be greater than rate of return?
1. If a stock has a(Alpha)=0.002, b(Beta)=1.4, Using the market model (eq. 7.4), find the expected percent return for the above stock if the market return is expected to be 2% and the risk free rate is 1%. 2. Assume stock prices follow a random walk and a particular stock has had the following recent stock prices: Day 1: 129.5 Day 2: 126.9 Day 3: 127.1 what is the best estimate of day 4 prices?
Assume that the risk-free rate is 7.5% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to one decimal place. _________ % What is the required rate of return on a stock with a beta of 1.8? Round your answer to one decimal place. _____________ %
Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 4 percent and the expected return for the market is 17 percent. STOCK BETA A 0.63 B 0.95 C 1.48 a. Using the CAPM, the required rate of return for stock A is B.Using the CAPM, the required rate of return for stock b is C.Using the CAPM, the required rate of return for stock C is (Round to two decimal places.)
Assume that the risk-free rate is 2.5% and the market risk premium is 8%. What is the required return for the overall stock market? Round your answer to one decimal place. ? % What is the required rate of return on a stock with a beta of 0.5? Round your answer to one decimal place. ? % The above is a two part question, therefore the second answer is determined based off the first answer provided. Please, please, please do provide both answers.
Consider the following table, which gives a security analyst’s expected return on two stocks and the market index in two scenarios: Scenario Probability Market Return Aggressive Stock Defensive Stock 1 0.5 6% 2.0% 5.0% 2 0.5 20 32 15 Required: a. What are the betas of the two stocks? (Round your answers to 2 decimal places.) b. What is the expected rate of return on each stock?
Stock A has a beta of 1.30, and its required return is 11.35%. Stock B's beta is 0.80. If the risk-free rate is 2.90%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) Do not round your intermediate calculations. a. 8.10% b. 6.50% c. 7.56% d. 8.45% e. 8.77%
Required Rate of Return Stock R has a beta of 1.3, Stock S has a beta of 0.75, the expected rate of return on an average stock is 9%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed that on the less risky stock? Do not round intermediate calculations. Round your answer to two decimal places.
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta Factor Risk Premium Inflation 1.1 9% Industrial production 0.7 11 Oil prices 0.3 7 Required: If T - bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. Factor Expected Value Actual Value Inflation 7 % 3% Industrial production 6 7 Oil prices 4 0 Note: For all requirements, do not round intermediate calculations. Round your answers to 1 decimal place.
(Expected rate of return using CAPM) a. Compute the expected rate of return for Intel common stock, which has a 1.5 beta. The risk-free rate is 4 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 13 percent. b. Why is the rate you computed the expected rate? a. The expected rate of return for Intel common stock is%. (Round to one decimal place.)

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