Refer to Exhibit 7.2. What are the expected (required) rates of return for the three stocks (in the order X, Y, Z)? a. 21.25 percent, 8.33 percent, 11.43 percent b. 16.50 percent, 5.50 percent, 22.00 percent c. 15.00 percent, 3.50 percent, 7.30 percent d. 6.20 percent, 2.20 percent, 8.20 percent e. 9.25 percent, 10.5 percent, 7.5 percent
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.
which one is correct?
QUESTION 8
-
Exhibit 7.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You expect the risk-free rate (RFR) to be 3 percent and the market return to be 8 percent. You also have the following information about three stocks.
Current
Expected
Expected
Stock
Beta
Price
Price
Dividend
X
1.25
$20
$23
$1.25
Y
1.50
$27
$29
$0.25
Z
0.90
$35
$38
$1.00
Refer to Exhibit 7.2. What are the expected (required)rates of return for the three stocks (in the order X, Y, Z)?a. 21.25 percent, 8.33 percent, 11.43 percentb. 16.50 percent, 5.50 percent, 22.00 percentc. 15.00 percent, 3.50 percent, 7.30 percentd. 6.20 percent, 2.20 percent, 8.20 percente. 9.25 percent, 10.5 percent, 7.5 percent
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
