(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston, Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury securities is currently 3.5 percent, and the expected return for the market portfolio is 11.5 percent. What should be the expected rates of return for each investment? Security B C D Beta 1.54 0.84 1.23 0.83 (Click on the icon in order to copy its contents into a spreadsheet) %. (Round to two decimal places.) a. The expected rate of return for security A, which has a beta of 1.54, is %. (Round to two decimal places.) b. The expected rate of return for security B, which has a beta of 0.64, is c. The expected rate of return for security C, which has a beta of 1.23, is %. (Round to two decimal places.) d. The expected rate of return for security D, which has a beta of 0.83, is %. (Round to two decimal places.)
(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston, Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of their analysis, Sante's managers have asked their junior analyst to estimate the investor-required rate of return on each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury securities is currently 3.5 percent, and the expected return for the market portfolio is 11.5 percent. What should be the expected rates of return for each investment? Security B C D Beta 1.54 0.84 1.23 0.83 (Click on the icon in order to copy its contents into a spreadsheet) %. (Round to two decimal places.) a. The expected rate of return for security A, which has a beta of 1.54, is %. (Round to two decimal places.) b. The expected rate of return for security B, which has a beta of 0.64, is c. The expected rate of return for security C, which has a beta of 1.23, is %. (Round to two decimal places.) d. The expected rate of return for security D, which has a beta of 0.83, is %. (Round to two decimal places.)
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
Related questions
Question
quiz 8-20
Transcribed Image Text:(Using the CAPM to find expected returns) Sante Capital operates two mutual funds headquartered in Houston, Texas. The firm is evaluating the stock of four different firms for possible inclusion in its fund holdings. As part of their analysis, Sante's managers have asked their junior analyst to
estimate the investor-required rate of return on each firm's shares using the CAPM and the following estimates: The rate of interest on short-term U.S. Treasury securities is currently 3.5 percent, and the expected return for the market portfolio is 11.5 percent. What should be the expected rates
of return for each investment?
Security
B
C
D
Beta
1.54
0.84
1.23
0.83
(Click on the icon in order to copy its contents into a spreadsheet)
%. (Round to two decimal places.)
a. The expected rate of return for security A, which has a beta of 1.54, is
%. (Round to two decimal places.)
b. The expected rate of return for security B, which has a beta of 0.64, is
c. The expected rate of return for security C, which has a beta of 1.23, is
%. (Round to two decimal places.)
d. The expected rate of return for security D, which has a beta of 0.83, is %. (Round to two decimal places.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education