Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled "Expected Return"). You have estimated that the risk-free rate is 5% and the return to the market will be 12%. Assuming that CAPM is correct, which stock should you purchase? Firm Beta Expected Return Anderson, Inc. 0.90 10.5% Delta Vanlines 1.25 13.0 % 1.60 16.0% Nathan's Bakeries Z-man Electronics 1.90 19.0%

Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled "Expected Return"). You have estimated that the risk-free rate is 5% and the return to the market will be 12%. Assuming that CAPM is correct, which stock should you purchase? Firm Beta Expected Return Anderson, Inc. 0.90 10.5% Delta Vanlines 1.25 13.0 % 1.60 16.0% Nathan's Bakeries Z-man Electronics 1.90 19.0%

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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You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend U 1.5 $10 $11.50 $1.00 N 1.1 $27 $30 $0.00 Ο 0.8 $35 $36 $1.50 (Question 2 of 2) What is the required rate of return (based on the CAPM) for an equally weighted portfolio of the three stocks? (Enter your answer as a percentage, i.e., "10.25" for 10.25 percent
Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled "Expected Return"). You have estimated that the risk-free rate is 5% and the return to the market will be 12%. Assuming that CAPM is correct, which stock should you purchase? Expected Return 10.5% Delta Vanlines 1.25 13.0 % 1.60 16.0% Firm Beta Anderson, Inc. 0.90 Nathan's Bakeries Z-man Electronics O Delta Vanlines 1.90 19.0% All of the stocks, Anderson, Inc. O Nathan's Bakeries OZ-man Electronics
You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $196,000 294,000 490,000 Beta Expected rate of return 1.50 0.55 1.35 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 18 percent and that the risk-free rate is 9 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%) Beta of the portfolio %
Zacher Co.'s stock has a beta of 1.28, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Select the correct answer. a. 10.09% b. 10.49% c. 11.29% d. 10.89% e. 11.69%
Using CAPM A stock has an expected return of 10 percent, its beta is .70, and the risk-free rate is 5.5 percent. What must the expected return on the market be?
Hi, The risk-free rate is 3% and you believe that the S&P 500's excess return (market risk premium) will be 10% over the next year. 1. If you invest in a stock with a beta of 1.2, what is your best guess as to its expected excess return over the next year? Thank you.
You have assigned the following values to these three firms: Upcoming Dividend $0.50 Estee Lauder Kimco Realty Nordstrom Price $36.00 75.00 11.00 1.58 2.00 Estee Lauder required return Kimco Realty required return Nordstrom required return Assume that the market portfolio will earn 17.20 percent and the risk-free rate is 8.20 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPM Growth 11.40% 17.00 8.80 % % % Beta 0.92 1.28 1.24 Constant-Growth Model % % %
11. Changesto the security market line 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. (Tool tip: Mouse over the points in the graph to see their coordinates.) REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 8.0 4.0 O Do 0.5 ■ 1.0 RISK (Beta) 1.5 2.0 (?)
Assume that the risk-free rate is 3.5% and the expected return on the market is 10%. What is the required rate of return on a stock with a beta of 0.7? Round your answer to two decimal places.
The estimated beta for Caterpillar Inc. is 135. The risk free rate of return is 3 percent and the Equity Risk Premium is 4 percent. What is the required rate of return for CAT using the CAPM? Group of answer choices 8.4% 12.3% 15.29% 10.1%
Pai lnc's stock has an expected return of 16.25%, a beta of 1.39, and is in equilibrium. If the risk-free rate is 2.8%, what is the market risk premium? A. 10.84% B. 9.68% C. 7.47% D. 11.32% E. 8.29%
Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%

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