Answered: The returns on small company stocks are…

The returns on small company stocks are 10.7%, U.S. Treasury bill offer a 1.5% return and a bank savings account offers an 1.3% return. What is the risk premium on small company stocks?

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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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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The returns on small company stocks are 10.7%, U.S. Treasury bill offer a 1.5% return and a bank savings account offers an 1.3% return. What is the risk premium on
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The current risk-free rate of return is 4.67%, while the market risk premium is 6.63%. The D'Amico Company has a beta of 0.78. Using the Capital Asset Pricing Model (CAPM) approach, D'Amico's cost of equity is: a. 8.86%. b. 10.82%. C. 10.33%. d. 9.84%.
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent] 20.0 16.0 12.0 Return on HC's Stock 8.0 4.0O 0.0 0.5 1.0 1.5 2.0 RISK (Beta) CAPM Elements Value Risk-free rate (rRF) 4.0% Market risk premium (RPM) 4.4% Happy Corp. stock's beta Required rate of return on 7.6% 2.2% Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is
According to Investopedia, from 199x until 199y, big-company stocks earned a mean return of 12.34% whereas little-company stocks earned 17.25%. If the mean return on U.S. T-bills during this period was 2.53%, the risk premium on little-company stocks was a. 4.91% b. 19.78% c. 14.72% d. 11.78% e. 9.81%
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