Heferences5 You have the following information about the returns for the securities of Super Luxplc and the returns for the market:TimeReturn of Super Lux (%)Return of the market (%)18102111t3208.2512142614Given that the rate of return on Treasury bills is 8 per cent and that the correlationcoefficient betrween the security and the market is +0.83, calculate the required rate ofreturn on Super Lux's shares using the CAPM.

The capital asset pricing model is the model which shows the relationship between the systematic…

You have the following information about the returns for the securities of Super Lux plc and the returns for the market: 5 Time Return of Super Lux (%) Return of the market (%) 18 10 21 11 t3 20 t4 25 12 26 14 ts Given that the rate of return on Treasury bills is 8 per cent and that the correlation coefficient between the security and the marker is +0.83, calculate the required rate of return on Super Luxs shares using rhe CAPM

You have the following information about the returns for the securities of Super Lux plc and the returns for the market: 5 Time Return of Super Lux (%) Return of the market (%) 18 10 21 11 t3 20 t4 25 12 26 14 ts Given that the rate of return on Treasury bills is 8 per cent and that the correlation coefficient between the security and the marker is +0.83, calculate the required rate of return on Super Luxs shares using rhe CAPM

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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Similar questions

A stock's beta is 1.5 and the market risk premium is 5.6%. If the risk-free rate is 2.9%, what is the stock's required return according to CAPM? Answer as a percent and round to 2 decimal places. Answer:
a. Calculate the change in retur Security A's change in return w Data table (Click on the icon here in order to copy its contents of the data table below into a spreadsheet.) Security A BC Print Beta 1.63 0.62 -0.24 ---n Done X iod.
Stock Z has a beta of 2 and an expected return of 10%. If Treasury Bills currently return 1% and the expected return on the S&P 500 is 7%, is this stock correctly priced, underpriced, or overpriced? Graph the security market line and Stock Z. Label all relevant details. What does beta represent? Explain the concept of market efficiency using your graph
You are using the CAPM to calculate a fair return for Stardust common stock. The shares have a volatility of 28.00%, while the market has a volatility of 15.00%. The correlation between the two sets of returns is 0.3. The risk free rate is 2.60%, while the expected return on the market is 4.80%. What is the fair return for Stardust common stock?
Assume that the risk-free rate is 7.5% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to one decimal place. _________ % What is the required rate of return on a stock with a beta of 1.8? Round your answer to one decimal place. _____________ %
The average return on the Market is 12% while the market risk premium is 7%. What is the require rate of return of the portfolio? (In percentage) Blue Co. has a collection of shares that is publicly trade. The value of each security and its stock beta are as follows: stock Investment Beta CEB 3,000,000 2 SMC 3,000,000 1.2 SCC 800,000 .5 MTB 1,200,000 1
An investor has conducted research on two individual stocks, high-risk (H) and low-risk (L), and the market with the following characteristics: Regarding risk-free rate, the lending rate is 2% and the borrowing rate is 5%. The investor can borrow a maximum of £50,000. He also assumes that non-market movements between stocks H and L are uncorrelated. a) Using the CAPM and the lending rate, calculate the alphas for stocks H and L. Indicate which stocks are over-/under- or correctly priced b) Construct an arbitrage portfolio by first leveraging stock L to match the beta of stock H. Calculate the return difference between the long and short portfolios. (Note: Leveraging means using margin purchase.)
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.)
f. Estimate Bartman's and Reynolds's betas by running regressions of their returns against the index's returns. Round your answers to four decimal places. Bartman's beta: fill in the blank 30 Reynolds's beta: fill in the blank 31 Are these betas consistent with your graph? These betas consistent with the scatter diagrams. g. Assume that the risk-free rate on long-term Treasury bonds is 4.5%. Assume also that the average annual return on the Winslow 5000 is not a good estimate of the market's required return—it is too high. So use 9% as the expected return on the market. Use the SML equation to calculate the two companies' required returns. Round your answers to two decimal places. Bartman's required return: fill in the blank 33 % Reynolds's required return: fill in the blank 34 % h. If you formed a portfolio that consisted of 50% Bartman and 50% Reynolds, what would the portfolio's beta and required return be? Round your answer for the portfolio's beta to four decimal places and…
Assume these are the stock market and Treasury bill returns for a 5-year period: Year Stock Market Return (%) T-Bill Return (%) 2016 13.0 0.2 2017 21.0 0.8 2018 -6.2 1.8 2019 29.8 2.1 2020 20.6 0.4 Required: What was the risk premium on common stock in each year? What was the average risk premium? What was the standard deviation of the risk premium? (Ignore that the estimation is from a sample of data.)-- expressed in % (NOTE: 11.31% is incorrect)
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: 00.51.01.52.020.016.012.08.04.00REQUIRED RATE OF RETURN (Percent)RISK (Beta)Return on HC's Stock CAPM Elements Value Risk-free rate (rRFrRF) Market risk premium (RPMRPM) Happy Corp. stock’s beta Required rate of return on 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 . Tool tip: Mouse over the points on…
Assume that the risk-free rate is 5.5% and the market risk premium is 7%. What is the required return for the overall stock market? Round your answer to one decimal place. % What is the required rate of return on a stock with a beta of 1.9? Round your answer to one decimal place. %

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