You own a stock that has an expected return of 16.00 percent and a beta of 1.33. The U.S. Treasury bill is yielding 3.65 percent and the inflation rate is 2.95 percent. What is the expected rate of return on the market? Group of answer choices 12.07 percent 12.94 percent 13.64 percent 14.09 percent 14.42 percent
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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- Given the following: the Prime is 8.1 %, the FED funds rate is 6.9%, 90 day T-Bills are yielding 5.2%, the average return on all stocks traded on the NYSE is 11.7%, what would be the nominal rate of return?(Inflation and Interest Rates) What would you expect the nominal rate of interest to be if the real rate is 4 percent and the expected inflation rate is 7 percent? (Expected Rate of Return and Risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return? Common Stock A Common Stock B Probability Return Probability Return .30 11% .20 25% .40 15% .30 6% .30 19% .30 14% .20 22% (Common Stock Valuation) Header Motor, Inc., paid a $3.50 dividend last year. At a constant growth rate of 5 percent, what is the value of the common stock if the investors require a 20-percent rate of return? (Preferred Stock Valuation) What is the value of a preferred stock where the dividend rate is 14 percent on a $100 par value? The appropriate discount rate for a stock of this…suppose the common stock of United Industries has a beta of 1.19 and an expected return of 11.8 percent. The risk-free rate of return is 3.5 percent while the inflation rate is 2.6 percent. What is the expected market risk premium? round to 2 decimal places,
- If the expected return on the market is 10.19 percent, the inflation rate is 1.11 percent, the risk-free rate is 2.10 percent, and Big Madden common stock has a beta of 2.36, then what is the expected return for Big Madden stock? 20.08% (plus or minus 4 bps) 23.53% (plus or minus 4 bps) 19.09% (plus or minus 4 bps) 21.19% (plus or minus 4 bps) None of the above is within 4 bps of the correct answerOlmsted Inc. has a beta of 1.38. The T-Bill rate is 3.87%, the rate of inflation is 3.93%, and the market risk premium is 9.03%. What is the expected return on Olmsted's stock? Group of answer choices 19.21 percent 13.43 percent 10.83 percent 16.33 percent 18.65 percentThe risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Probability of Rate of Return if State State of the Economy State of Economy Вoom Occurs 0.35 16% Normal 14% 0.65
- Roundall dollar answers to 2 decimal places and record all interest rate, coupon rate and growth rate answers as a percentrounded to one decimal place 40. If the expected return on the market portfolio (i.e., Rm) is 18%, if the risk-free rate (i.e., Rf) is 8% and if thebeta of Homton, Inc. stock is 1.75, what is the equilibrium expected rate of return on Homton’s stockaccording to the Capital Asset Pricing Model (CAPM)? (Record your answer rounded to 1 decimal place; forexample, record 18.29654% as 18.3).41. If the beta of Braxton, Inc. stock is 1.51, the risk-free rate (Rf) is 3.5%, and the market risk premium is 4.8%,what is the equilibrium expected rate of return on Braxton’s stock according to the Capital Asset PricingModel (CAPM)? (Record your answer rounded to 1 decimal place; for example, record 18.29654% as 18.3)An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the Treynor and Sharpe measures of portfolio performance. The following table provides the average annual rate of return for Portfolio X, the market portfolio (as measured by the Standard and Poor's 500 Index), and U.S. Treasury bills (T-bills) during the past eight years. Annual Average Standard Deviation Rate of Return of Return Beta Portfolio X 11% 18% 0.40 S&P 500 13 14 1.00 T-bills 6 n/a n/a n/a = not applicable a. Calculate both the Treynor measure and the Sharpe measure for both Portfolio X and the S&P 500. Round your answers for the Treynor measure to one decimal place and for the Sharpe measure to three decimal places. Treynor measure Sharpe measure Portfolio X S&P 500 % Briefly explain whether Portfolio X underperformed, equaled, or outperformed the S&P 500 on a risk-adjusted basis using both the Treynor measure and the Sharpe measure. Based on the Treynor measure Portfolio…(Expected rate of return using CAPM) a. Compute the expected rate of return for Acer common stock, which has a 1.8 beta. The risk-free rate is 5 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 13 percent. b. Why is the rate you computed the expected rate? ... a. The expected rate of return for Acer common stock is %. (Round to one decimal place.)
- The risk-free rate of return is 2.5 percent, the inflation rate is 3.1 percent, and the market risk premium is 5.3 percent. What is the expected rate of return on a stock with a beta of 1.00? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)Subject :- Account News Corporation (US stock) has a beta of 1.37 and a required rate of return of 10.21%. If you are using CAPM and the risk-free rate of return is 3.0 percent, what is the implied expected market risk premium for the US stock market?Stock A has a risk premium of 4.3 percent. If Treasury bills yield 2.0 percent and the expected return on the market is 7.3 percent, what is the stock's beta coefficient? Round your answer to two decimal places.