Since it is still pandemic, the Luxury Hotel is planning to invest in a blue-chip stock at 100 per share with an annual dividend of 8%. The stock has a beta of 1.5. Assume the risk-free rate is 3% and the company expects the market to rise in value by 8%. What is the expected risk premium? O 10.50% O 9.5% O 8.5% O 7.5%

Since it is still pandemic, the Luxury Hotel is planning to invest in a blue-chip stock at 100 per share with an annual dividend of 8%. The stock has a beta of 1.5. Assume the risk-free rate is 3% and the company expects the market to rise in value by 8%. What is the expected risk premium? O 10.50% O 9.5% O 8.5% O 7.5%

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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Investors require a return of 14.15 percent on Industrial Industries stock and require a return of 10.90 percent on the market. If the stock has a beta of 1.5. What is the risk-free rate of return?
The expected return on Bevo stock is 12.6 percent. If the expected return on the market is 10 percent and the beta for Bevo is 1.4, then what is the risk-free rate? O 2.0% O 2.5% O 3.5% O 3.0%
The current price of a non-dividend-paying biotech stock is $140 with a volatility of 25%. The risk-free rate is 4%. For a 3-month time step: (a) What is the percentage up movement? (b) What is the percentage down movement? (c) What is the probability of an up movement in a risk-neutral world? (d) What is the probability of a down movement in a risk-neutral world? Use a two-step tree to value a 6-month European call option and a 6-month European put option. In both cases the strike price is $150. Answer: (For (a) to (d), answer XX.XX if the answer is XX.XX% or 0.XXXX; for the option prices: please round you answers to the second decimal places.) (a, (c) (d) Price of the Call: Price of the Put: % % % %
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? Expected Return 10.5% Delta Vanlines 1.25 13.0 % 1.60 16.0% Firm Beta Anderson, Inc. 0.90 Nathan's Bakeries Z-man Electronics O Delta Vanlines 1.90 19.0% All of the stocks, Anderson, Inc. O Nathan's Bakeries OZ-man Electronics
Jersey Jewel Mining has a beta coefficient of 1.3. Currently the risk-free rate is 2 percent and the anticipated return on the market is 8 percent. JJM pays a $5.30 dividend that is growing at 6 percent annually. Do not round intermediate calculations. What is the required return for JJM? Round your answer to two decimal places. % Given the required return, what is the value of the stock? Round your answer to the nearest cent. $ If the stock is selling for $166, what should you do? The stock -Select-isis notItem 3 overvalued and -Select-shouldshould notItem 4 be purchased. If the beta coefficient declines to 1.2, what is the new value of the stock? Round your answer to the nearest cent. $ If the price remains $166, what course of action should you take given the valuation in d? The stock is -Select-overvaluedundervaluedItem 6 and -Select-shouldshould notItem 7 be purchased.
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Consider a market where there are N rational traders. All of these traders have CARA preferences with risk aversion parameter γ = .5. They are considering a stock that will pay a terminal dividend in the next period. The expected payoff of the dividend is $100 per share with a standard deviation of $10. Assume that the discount rate is zero. That is, don’t worry about discounting future payoffs. a) If there are 10 shares of the stock available, what is the price of the stock as a function of N? b) Does the price increase or decrease as N increases? Explain the intuition of this result. c) If N = 10, what is the price of the stock? How does the price change if γ increases to .6? Explain the intuition for why the price moves this direction when γ increases.
Hi, The risk-free rate is 3% and you believe that the S&P 500's excess return (market risk premium) will be 10% over the next year. 1. If you invest in a stock with a beta of 1.2, what is your best guess as to its expected excess return over the next year? Thank you.
4
Solve the following questions If the expected return on a stock is 10 per cent. Risk free rate ot returm is 4 per cent and market return is 14 percent, What must be the etaT If the value of expected return of Galfar Engineering 14 per cent, if Beta is 12 and market retum is 16 per cent. What must be the k free rate If the expected return on a stock is 15 per cent, if the beta is 0.8 and risk free.rate of return is 8 per cent. What must be the return on the market? 16.75 96 18.50 % 19.25 9% 22.63 %
b. Your broker suggests two stocks as good to purchase; stock GAAB and stock PUFF. The two stocks each pay a GHS 1.5 dividend that is growing annually at 9 percent. Stock GAAB has a beta of 1.4 while stock PUFF's beta is 0.85. Which stock is more volatile and why? If treasury bills yield 8 percent and you expect the market return to rise by 15.5 percent, what is your risk-adjusted required rate of return? i. ii.
The risk-free rate is 4% and the expected market return is 10%. A stock with a beta of 0.9 is currently priced at $40 and will pay $1.40 dividend one year later. If then the stock will be priced at $42, is the stock underpriced or overpriced?

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