The following table shows the sensitivity of four stocks to the three Fama-French factors. Assuming that the interest rate is 4%, the expected risk premium on the market is 7%, the expected risk premium on the size factor is 3.1%, and the expected risk premium on the book-to-market factor is 4.3%. Market Size Ford 1.38 -0.21 0.72 Ford Walmart Citigroup Apple Walmart 0.82 -0.42 -0.33 Expected return % % % % Citigroup 1.19 -0.46 0.99 Apple 1.39 Book-to-market Calculate the expected return on each stock. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. -0.59 -0.72

The following table shows the sensitivity of four stocks to the three Fama-French factors. Assuming that the interest rate is 4%, the expected risk premium on the market is 7%, the expected risk premium on the size factor is 3.1%, and the expected risk premium on the book-to-market factor is 4.3%. Market Size Ford 1.38 -0.21 0.72 Ford Walmart Citigroup Apple Walmart 0.82 -0.42 -0.33 Expected return % % % % Citigroup 1.19 -0.46 0.99 Apple 1.39 Book-to-market Calculate the expected return on each stock. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. -0.59 -0.72

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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The following table shows the sensitivity of four stocks to the three Fama–French factors. Assume the interest rate is 2%, the expected risk premium on the market is 5%, the expected risk premium on the size factor is 2.9%, and the expected risk premium on the book-to-market factor is 4.7%. Ford Walmart Citigroup Apple Market 1.34 0.74 1.15 1.35 Size −0.17 −0.46 −0.42 −0.57 Book-to-market 0.86 −0.37 0.95 −0.62 Calculate the expected return on each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
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Assume the following data for a stock: Risk - free rate market) == 1.5; beta (size) = 0.3; beta (book-to-market) = 5 percent; beta ( = - 1.1; market risk premium 1 7 percent; size risk premium 3.7 percent; and book - to - market risk premium = 5.2 percent. Calculate the expected return on the stock using the Fama - French three-factor model.
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Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 6 percent and the expected return for the market is 14 percent. STOCK ВЕТА A 0.62 B 1.09 1.48 a. Using the CAPM, the required rate of return for stock A is %. (Round to two decimal places.) b. Using the CAPM, the required rate of return for stock B is %. (Round to two decimal places.) c. Using the CAPM, the required rate of return for stock C is %. (Round to two decimal places
Consider the following information about two stocks (D and E) and two common risk factors (1 and 2) ba 1.6 2.1 Stock D E ba E(R.) 3.1 14.45% 2.1 13.90% a. Assuming that the risk-free rate is 5.5%, calculate the levels of the factor risk premia that are consistent with the reported values for the factor betas and the expected returns for the two stocks. Round your answers to one decimal place Axt Ax b. You expect that in one year the prices for Stocks D and I will be $51 and $39, respectively. Also, neither stock is expected to pay a dividend over the next year. What should the price of each stock be today to be consistent with the expected return levets listed at the beginning of the problem? Round your answers to the nearest cent. Today's price for Stock D: Today's price for Stock E: S Suppose now that the risk premium for Factor 1 that you calculated in Part a suddenly increases by 0.33% 0e, from x to (-0.35%, where is the value established in Part . What are the new expected returns…
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.)
5. Consider the following information about two stocks (D and E) and two common risk factors (1 and 2): Stock Ba Biz E(R₁) 13.1% D 1.2 3.4 E 2.6 2.6 15.4% a. Assuming that the risk-free rate is 5%, calculate the levels of the factor risk-premium that are consistent with the reported values for the factor betas and the expected returns for the two stocks. b. You expect that in one year the prices of for D and E will be $55 and $36. Neither stock is expected to pay a dividend over the next year. What should the price of each stock be today to be consistent with the expected return levels in the table above? c. Suppose that the risk-premium for Factor 1 that you calculated at point a) suddenly increases by 0.25%, i.c., from x% to (x+0.25)%, where x is the value established at a). What are the new expected returns for D and E? d. If the increase in the Factor 1 risk-premium in c) does not cause a change in opinion about what the stock prices will be in one year, how will the current prices…
Suppose that index model for Stocks A and B is estimated from excess returns with the following results: Ra= 0.04+0.6Rm+ea, Rb= -0.04+1.3Rm+eb, Risk on the market is 30%, R-squared of A is 30%, R-squared of B is 40%, systematic risk for B is Select one: O a. 1521 O b. 1115 O c.914 O d. 1345
Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the systematic risk of each stock?
1. Consider the three stocks in the following table. P, represents price at time t, and Q, represents shares outstanding at time t. Calculate the rates of return on the following indexes of the three stocks: A B с Po 90 50 100 a. A market-value-weighted index. b. An equally weighted index. Qo 100 200 200 P₁ 95 45 110 Q₁ 100 200 200
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