Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the nexttwelve months (labeled "Expected Return"). You have estimated that the risk-free rate is 5% and the return to themarket will be 12%. Assuming that CAPM is correct, which stock should you purchase?FirmBeta Expected ReturnAnderson, Inc. 0.9010.5%Delta Vanlines 1.2513.0%Nathan's1.6016.0%BakeriesZ-man1.9019.0%ElectronicsO All of the stocksO Z-man ElectronicsO Nathan's BakeriesO Delta VanlinesO Anderson, Inc.

First we need to calculate the required return using the CAPM model and then compare the return with…

Answered: Your broker has developed a list of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 7P

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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 1.10 13.0% Nathan's Bakeries 1.60 16.0% Z-man Electronics 2.15 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 Anderson, Inc. 0.90 10.5% Delta Vanlines 1.25 13.0% 1.60 16.0% Nathan's Bakeries Z-man Electronics Nathan's Bakeries Anderson, Inc. 1.90 19.0% Z-man Electronics All of the stocks Delta Vanlines Expected Return
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
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? Anderson, Inc. Nathan's Bakeries Z-man Electronics Delta Vanlines All of the stocks Beta Expected Return Anderson, Inc. 0.90 10.5% Delta Vanlines 1.10 13.0% 1.60 16.0% Firm Nathan's Bakeries Z-man Electronics 2.15 19.0%
Suppose that you have estimated the CAPM betas for the equity shares of the following two firms: Levi Strauss & Co. ( NYSE: LEVI): \beta ^ LEVI = 1.10 Tesla Inc. (Nasdaq: TSLA) : \beta ^ TSLA = 1.90 Assume that the risk - free rate is estimated at 4%, stable over the entire CAPM estimation period, and will remain in the foreseeable future. Answer questions a) and b) below. (Lecture notes p.12, pp.15-17) Suppose the expected return on S&P 500 index, a proxy for the market portfolio, is estimated at 17%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results): Suppose the market risk premium is estimated at 9%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results):
Calculate the expected (required) return for each of the following stocks when the risk-free rate is 0.08 and you expect the market return to be 0.14. Stock Beta A 1.72 B 1.14 C 0.76 D 0.44 E 0.03 F -0.79 The following are the historic returns for the Chelle Computer Company: Year Chelle Computer General Index 1 37 15 2 9 13 3 -11 14 4 8 -9 5 11 12 6 4 9 Based on this information, compute the following: a. The correlation coefficient between Chelle Computer and the General Index. b. The standard deviation for the company and the index. c. The beta for the Chelle Computer Company.
← You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is about 4.03% and the market risk premium is 6.48%. If you think the stock will rise to $118.76 per share by the end of the year, at which time it will pay a $3.48 dividend, what beta would it need to have for this expectation to be consistent with the CAPM? The beta is (Round to two decimal places.) ...
Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 9.00%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.) Select the correct answer. a. 8.12% b. 8.09% c. 8.15% d. 8.18% e. 8.21%
n Question 3 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 Anderson, Inc. 0.90 Delta Vanlines 1.25 13.0% 1.60 16.0% Nathan's Bakeries Z-man Electronics O Z-man Electronics O Anderson, Inc. 1.90 19.0% O All of the stocks Expected Return 10.5% O Nathan's Bakeries O Delta Vanlines
Currently the risk-free rate equals 5% and the expected return on the market portfolio equals 11%. An investment analyst provides you with the following information: Stock A Beta 1.33 Expected Return 12% Stock B Beta 0.7 Expected Return 10% (a) Calculate the reward-to-risk ratios of stock A, stock B and in market equilibrium. Are stock A and stock B overvalued, undervalued or fairly valued? Briefly explain. [within 150 words] (b) You want a portfolio with the same risk as the market. Calculate the weights of stock A and B respectively. (please show me steps and round the final answer to 2 decimal places, thanks)
Currently the risk-free rate equals 5% and the expected return on the market portfolio equals 11%. An investment analyst provides you with the following information: Expected Return 12% Stock Beta A 1.33 B 0.7 10% REQUIRED (a) Calculate the reward-to-risk ratios of stock A, stock B and in market equilibrium. Are stock A and stock B overvalued, undervalued or fairly valued? Briefly explain. [within 150 words] (b) You want a portfolio with the same risk as the market. Calculate the weights of stock A and B respectively.
Use CAPM to solve the following: A stock as a beta of 0.9 and the market expects to return 12.0%. If the risk free rate is 2.0%, what is the expected return of the stock? 14.2% 8.6% 3.4% 11.0%

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