You are thinking of buying a stock priced at $100 per share. Assume that the risk-free rate is about 4.5% and the market risk premium is 6%. If you think the stock will rise to $117 per share by the end of the year, at which time it will pay a $1 dividend, what beta would it need to have for this expectation to be consistent with the CAPM?

Q: Why some entrepreneurs are hesitant to avail of commercial bank loans? (b) Why some of them resort…

A: To start a business, some amount of capital is needed beyond the owner's capital. Commercial…

Q: Assume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required…

A: Required return = Risk free rate + Beta * Market risk premium

Q: You have bought a stock for a $100. You are expecting to get a return of 10% while the volatility of…

A: Calculation of the stock price range (Upper bound and Lower Bound) is shown below: Hence, the price…

Q: Suppose Peloton company's stock has a beta of 0.89 and a required rate of return for the stock is…

A: The risk-free rate, which is sometimes represented as the yield on government bonds, is the…

Q: = $4.75 next year, and your advisory service tells you -$79. The stock's beta is 1.5, r, is 4%, and…

A: Answer : Abnormal return : Abnormal return = Required rate of return - return expected to be earned…

Q: Investors expect the market rate of return this year to be 16.50%. The expected rate of return on a…

A: In the given case, we have provided the expected market return rate, beta and the expected…

Q: You currently own $100, 000 worth of Wal-Mart stock. Suppose that Wal-Mart has an expected return of…

A: The objective of the question is to find an alternative investment that has the highest possible…

Q: You have a required rate of return of 11.4%. If the current risk-free rate is 3%, and your stock has…

A: In this question we require to calculate the market risk premium. We can calculate market risk…

Q: The expected return on the market is 15% and the risk-free rate of return is 5%. If the Beta of the…

A: In given question we need to compute the expected rate of return for stock using CAPM.

Q: Using CAPM A stock has an expected return of 13 percent, the risk-free rate is 4.5 percent, and the…

A: Given details are : Expected return = 13% Risk free rate = 4.5% Market risk premium = 7% We need to…

Q: Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for…

A: Required rate of return is the percentage of profit required from an investment. Formulas: Required…

Q: Your broker has recommended that you purchase stock in Alacan, Inc. She estimates that the 1-year…

A: Cost of equity = Rf + Beta * ( Rm - Rf ) = 2.70% + 0.91 * 9.50% = 2.70% + 8.645% = 11.345%

Q: The current risk-free rate of return, rRF, is 2 percent and the market risk premium, RPM, is 8…

A: Risk free rate = 2% Marker risk premium = 8% Beta = 1.40

Q: Assume that the risk-free rate is 5.5% and the required returnon the market is 12%. What is the…

A: The formula to compute required rate of return:

Q: Blast! stock has a beta of 0.8 and is currently selling for $22. Your DCF analysis indicates that…

A: In finance, the term “Alpha” represents a financial ratio that helps to measure the maximum return…

Q: Based on the CAPM model, what should be the expected return for a stock with a beta of 2.1 when the…

A: The Capital Asset Pricing Model (CAPM) is used to calculate the expected return of a stock based on…

Q: Stock ABC has a beta of 1.4 and the standard deviation of its returns is 30%. The market risk…

A: The capital asset pricing model is a method to determine the expected return on the stock based on…

Q: A stock has an expected return of 13.1 percent, its beta is 1.70 and the risk free premium rate is…

A: Risk market return is used in CAPM model to calculate expected return on the stock and it is also…

Q: You are considering an investment in Eagle Corporation's stock, which is expected to pay a dividend…

A: GIVEN, Rf=3.3% beta = 0.9 Rm= 5% therefore,  from CAPM model,…

Q: Assume the following information about the market and Lithium Motors Stock.​ Lithium's beta​ = 1.80,…

A: Beta (b) = 1.80 Risk free rate (Rf) = 0.025 Market risk premium (Mp) = 0.08 Expected return = ?…

Q: Assume that the risk-free rate is 6.5% and the market risk premium is 5%. What is the required…

A: Solution:-Capital Asset Pricing Model (CAPM) is a model which gives a formula to calculate the…

Q: A stock has a beta of 1.9. The risk-free rate is 2%. Assume that the CAPM holds. What is the…

A: According to CAPM (Capital asset pricing model) ,k =Rf+[ b*(Rm-Rf)]wherek= expected return for the…

Q: The price of a non-dividend-paying stock is $100. Suppose that the continuously compounded risk-free…

A: Value at risk is a statistical measure used by Investment funds, portfolio managers as well as banks…

Q: You are considering an investment in Keller Corp's stock, which is expected to pay a dividend of…

A: Price of the share can be determined by discounting the expected dividend growth with the cost of…

Q: Sha  is expected to pay a dividend of 1.00 at the end of the year. The market's risk free rate is…

A: Stock price refers to the market value of the stock. Stock price is influenced by many external and…

Q: You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend…

A: Dividend for year 1 = d1 = $2Beta = b = 0.9Risk free Rate = rf = 5.8%Market Risk Premium = mrp =…

Q: You are holding a stock which has a beta of 2.0 and is currently in equilibrium. The required return…

A: First we need to find out the risk free rate by using CAPM formula rs =Rf +β*(Rm -Rf) rs =Required…

Q: Assume that the risk-free rate is 3% and the expected return on the market is 11%. What is the…

A: In the given question we are require to calculate the required rate of return on a stock. We can…

Q: Suppose the market risk premium is expected to be 8%, a stock has a beta of 1.16, and the T-bill…

A: The Jensen’s alpha of a stock refers to the abnormal returns that the stock provides over the value…

Q: The stock of Wiley United has a beta of 0.92. The market risk premium is 8.6% and the risk-free rate…

A: Given the following information: Beta: 0.92 Market risk premium: 8.6% Risk free rate: 2.2%

Q: A share of stock with a beta of 0.71 now sells for $61. Investors expect the stock to pay a year-end…

A: The beta of the stack is a measure of how the stock is expected to change when there is a change in…

Q: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and…

A: Information given in ques is as follows: Expected return on Stock = 16.2% Beta = 1.2 Risk free rate…

Q: A firm's common stock has just paid a $3.00 dividend (Do), which is expected to grow at a constant…

A: .Current price of stock is the price which can be paid for purchase of the stock. It is also called…

Q: You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend…

A: The capital asset pricing model (CAPM) represents the minimum rate of return required by investors…

Q: ng a stock that has a beta of 1.2. The risk-free rate is 5% and you estimate the market risk premium…

A: We need to compute the expected return as per capital asset pricing model. If expected return as per…

Q: A stock has a beta of 1.2 and a market risk premium of 10%.  If the risk free rate is 2%, what is…

A: The capital  Assets pricing model is used in order to  calculate the expected return which is…

Q: A new company has a beta of 0.8. Their risk free rate is 4% and the market risk premium is 9%. What…

A: Beta = 0.8 Risk Free Rate = 4% Market Risk Premium = 9%