The 10-year bond yield issued by the Singapore Government has been increasing consistently over the last three years, from 0.84% in 2020, to 1.67% in 2021 and 3.09% in 2022. a) Examine the implications of the expected return on stocks using the capital asset pricing model in the current economic environment. Your answer should not exceed 200 words The price and dividend information over the last five years relating to Walmart (operating in the discount stores industry) and Shell (operating in the oil and gas industry) are shown below. b) Appraise which stock is less risky if held on its own. Your answer should not exceed 200 words. Year 2018 2019 2020 2021 2022 Year 2018 2019 2020 2021 2022 Stock price at the end of the year Shell 48.37 52.10 32.59 41.86 56.43 Walmart 86.20 112.31 138.62 141.30 140.68 Dividend per share Walmart 2.04 2.08 2.12 2.16 2.20 Shell 1.88 1.88 0.65 0.89 1.04

The 10-year bond yield issued by the Singapore Government has been increasing consistently over the last three years, from 0.84% in 2020, to 1.67% in 2021 and 3.09% in 2022. a) Examine the implications of the expected return on stocks using the capital asset pricing model in the current economic environment. Your answer should not exceed 200 words The price and dividend information over the last five years relating to Walmart (operating in the discount stores industry) and Shell (operating in the oil and gas industry) are shown below. b) Appraise which stock is less risky if held on its own. Your answer should not exceed 200 words. Year 2018 2019 2020 2021 2022 Year 2018 2019 2020 2021 2022 Stock price at the end of the year Shell 48.37 52.10 32.59 41.86 56.43 Walmart 86.20 112.31 138.62 141.30 140.68 Dividend per share Walmart 2.04 2.08 2.12 2.16 2.20 Shell 1.88 1.88 0.65 0.89 1.04

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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Alexa Co. is the value of its equity given the following information:Government risk-free rates today stands at 4.5%Alexa is expected to declare dividends amounting to Php10.00 next yearDividends are expected to grow at 20% per year until year 5 and stabilizes at 4% beginning year 6 onwardsBeta is currently estimated at 2.0Equity risk premium is estimated at 4% 1. How much is the terminal value of the dividends at year 5? 2. How much is the price today of Alexa's share? 3. How much is the market risk premium for Alexa?
Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory, what is the current rate on a four- year Treasury security? R1 = 6.65% E(r₂) 7.75% L2 = 0.10% E(r3) = 7.85% L3 0.20% E(r4) = 8.15% L4 = 0.25% Multiple Choice O 7.736 percent 7.600 percent 7.738 percent 8.400 percent
Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 12 percent to 8 percent. a. What is the bond price at 12 percent? b. What is the bond price at 8 percent? c. What would be your percentage return on investment if you bought when rates were 12 percent and sold when rates were 8 percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
Suppose that the Kat Corporation over the past five years has had an average annual return of 7%. During that same period, the average annual return for the stock market was 3% and the average annual return on U.S. Treasury bills was 1%. The beta of Kat Corporation is estimated to be 2. What was Kat Corporation's excess return over the five-year period? O 3% O 4% O 5% O 6%
Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R₁ = 0.55% R1 E(21) = 1.70% = 42 = 0.08% E(31) 1.80% 43 = L4= 0.12% 0.14% = E(41) 2.10% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Current (Long-term) Rates Years 1 % 2 % 3 % 4 5 %
Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 0.80% = 1.95% E(201) E(3r1) E(41) = 2.05% = 2.35% Years 1 2 3 4 42= 0.07% 43= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Current (Long-term) Rates % % % %
Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 0.80% = 1.95% R1 E(201) E(371) = $2.05% E(471) 2.35% L2= 0.07% L3= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years 1 2 3 4 Current (Long-term) Rates % % % %
Imagine that, during a job interview, you are handed the following quotes on U.S. Treasuries: Bond Maturity Coupon rate Yield to (years) maturity 1 1 5% 4.5% 2 2 5% 5.0% 3 3 0% 5.0% Assume that the par value is $100 and coupons are paid annually, with the first coupon payment coming in exactly one year from now. The yield to maturity is also quoted as an annual rate. What should be the 1-year forward rate between years 2 and 3? a. 6.482% ○ a. O b. 6.137% c. 6.507% O d. 6.736% NAVA
Suppose you bought a bond with an annual coupon rate of 8.4 percent one year ago for $960. The bond sells for $960 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? b. What was your total nominal rate of return on this investment over the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. If the inflation rate last year was 2.5 percent, what was your total real rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Total dollar return b. Nominal rate of return с. Real rate of return %
Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity risk premium is zero. Given this information, which of the following statements is CORRECT? a. A 5-year corporate bond must have a lower yield than a 7-year Treasury security. b. The yield curve for U.S. Treasury securities will be upward sloping. c. A 5-year corporate bond must have a lower yield than a 5-year Treasury security. d. The real risk-free rate cannot be constant if inflation is not expected to remain constant. e. This problem assumed a zero maturity risk premium, but that is probably not valid in the real world.
Based on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: R1 = 1.00% E(271) = 2.15% L2= 0.05% E(351) = 2.25% L3= 0.10% E(471) = 2.55% L4= 0.12% Using the liquidity premium theory, determine the current (long-term) rates. Note: Do not round intermediate calculations. Round your percentage answers to 2 decimal places (i.e., 0.1234 should be entered as 12.34). Years 1 2 3 4 Current (Long-term) Rates
The total market value of the equity of Okefenokee Condos is $3 million, and the total value of its debt is $2 million. The treasurer estimates that the beta of the stock currently is 1.1 and that the expected risk premium on the market is 10%. The Treasury bill rate is 5%, and investors believe that Okefenokee's debt is essentially free of default risk. a. What is the required rate of return on Okefenokee stock? Note: Do not round intermediate calculations. Enter your answer as a whole percent. b. Estimate the WACC assuming a tax rate of 21%. Note: (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Estimate the discount rate for an expansion of the company's present business. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.3.…

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