Suppose the market risk premium is 6% and the risk-free interest rate is 5% . Using the data in the table, calculate the expected return of investing in a. Starbucks' stock. b. Hershey's stock. c. Autodesk's stock.
Suppose the market risk premium is 6% and the risk-free interest rate is 5% . Using the data in the table, calculate the expected return of investing in a. Starbucks' stock. b. Hershey's stock. c. Autodesk's stock.
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 the market risk premium is 6% and the risk-free interest rate is 5% . Using the data in the table, calculate the expected
a. Starbucks' stock.
b. Hershey's stock.
c. Autodesk's stock.
Transcribed Image Text:**Beta Values for Selected Companies**
(Click on the following icon in order to copy its contents into a spreadsheet.)
| | Starbucks | Hershey | Autodesk |
|--------|-----------|---------|----------|
| **Beta** | 0.80 | 0.33 | 1.72 |
**Explanation:**
The table above displays the beta values for three companies: Starbucks, Hershey, and Autodesk.
- **Beta** is a measure of a stock's volatility in relation to the overall market.
- A beta of **1** indicates that the stock's price is expected to move with the market.
- A beta less than **1** suggests that the stock is less volatile than the market.
- A beta greater than **1** indicates that the stock is more volatile than the market.
In this data:
- Starbucks has a beta of **0.80**, meaning it is less volatile than the market.
- Hershey has a beta of **0.33**, indicating it is significantly less volatile.
- Autodesk has a beta of **1.72**, suggesting it is more volatile than the market.
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