(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 4 percent, and the expected return for the market portfolio is 10 percent. What should be the expected rates of return for each investment? Security Beta A 1.67 B 0.58 C 1.14 D 0.78 (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. The expected rate of return for security A, which has a beta of 1.67, is enter your response here%. (Round to two decimal places.) Part 2 b. The expected rate of return for security B, which has a beta of 0.58, is enter your response here%. (Round to two decimal places.) Part 3 c. The expected rate of return for security C, which has a beta of 1.14 , is enter your response here%. (Round to two decimal places.) Part 4 d. The expected rate of return for security D, which has a beta of 0.78 , is enter your response here%. (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 4 percent, and the expected return for the market portfolio is 10 percent. What should be the expected rates of return for each investment? Security Beta A 1.67 B 0.58 C 1.14 D 0.78 (Click on the icon in order to copy its contents into a spreadsheet.) Question content area bottom Part 1 a. The expected rate of return for security A, which has a beta of 1.67, is enter your response here%. (Round to two decimal places.) Part 2 b. The expected rate of return for security B, which has a beta of 0.58, is enter your response here%. (Round to two decimal places.) Part 3 c. The expected rate of return for security C, which has a beta of 1.14 , is enter your response here%. (Round to two decimal places.) Part 4 d. The expected rate of return for security D, which has a beta of 0.78 , is enter your response here%. (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
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Question
(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
return for each investment ?
4
percent, and the expected return for the market portfolio is
10
percent. What should be the expected rates of |
Security
|
Beta
|
|---|---|
|
A
|
1.67
|
|
B
|
0.58
|
|
C
|
1.14
|
|
D
|
0.78
|
(Click
on the icon
spreadsheet.)
Question content area bottom
Part 1
a. The expected rate of return for security A, which has a beta of
1.67,
is
enter your response here%.
(Round to two decimal places.)Part 2
b. The expected rate of return for security B, which has a beta of
0.58,
is
enter your response here%.
(Round to two decimal places.)Part 3
c. The expected rate of return for security C, which has a beta of
1.14
, is
enter your response here%.
(Round to two decimal places.)Part 4
d. The expected rate of return for security D, which has a beta of
0.78
, is
enter your response here%.
(Round to two decimal places.)Expert Solution
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