Chapter 11, Problem 3P

Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively. b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively. a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is %. (Round to two decimal places.)

Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.48 when the risk-free rate and market return are 8% and 13%, respectively. b. Find the risk-free rate for a firm with a required return of 14.684% and a beta of 1.47 when the market return is 12%. c. Find the market return for an asset with a required return of 12.040% and a beta of 0.95 when the risk-free rate is 5%. d. Find the beta for an asset with a required return of 13.312% when the risk-free rate and market return are 10% and 12.3%, respectively. C a. The required return for an asset with a beta of 1.48 when the risk-free rate and market return are 8% and 13%, respectively, is %. (Round to two decimal places.)

You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns: a. What was XYZ's average historical return? b. Compute the market's and XYZ's excess returns for each year. Estimate XYZ's beta. c. Estimate XYZ's historical alpha. d. Suppose the current risk-free rate is 3%, and you expect the market's return to be 9%. Use the CAPM to estimate an expected return for XYZ Corp.'s stock. e. Would you base your estimate of XYZ's equity cost of capital on your answer in part (a) or in part (d)? Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2007 2008 Risk-free Return 2% 1% Print Market Return 5% - 39% Done XYZ Return 11% - 46% X

Please show how to solve this Consider the REIT valuation spreadsheet presented in class. For each of the following scenarios, and all other things equal, determine whether each scenario will increase, decrease or won’t affect the probability that new investors will achieve their levered required rate of return. a. A distribution is defined for NOI growth rate, where the average value remains the same, but the right “tail” of the distribution is longer than the left “tail”. b. The quality adjustment value is lower.c. The risk premium is lower.d. The current market cap is higher.e. The price of the REIT is lower.f. The projected 10-year treasury rate is higher.

which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate.  3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money

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​(Capital asset pricing​ model)  Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent and the expected return for the market is 9 percent.   Stock Beta K 1.06 G 1.28 B 0.78 U 0.93   ​(Click on the icon    in order to copy its contents into a spreadsheet.​)   a.  Using the​ CAPM, what rates of return should Grace require for each individual​ security? b.  How would your evaluation of the expected rates of return for Grace change if the​ risk-free rate were to rise to 4 percent and the market risk premium were to be only 6 ​percent? c.  Which market risk premium scenario​ (from part a or b​) best fits a recessionary​ environment? A period of economic​ expansion? Explain your response.       Question content area bottom Part 1 a.  The expected rate of return for security​ K, which has a beta of 1.06​, is enter your response here​%. ​(Round to two decimal​ places.) Part 2 The expected rate…

Assume that there is a positive linear correlation between the variable R (return rate in percent of a financial investment) and the variable t(age in years of the investment) given by the regression equation R=2.5t+5.3. (a) Without further information, can we assume there is a cause and effect relationship between the return rate and the age of the investment? (b) If the investment continues to grow at a constant rate, what is the expected return rate when the investment is 7 years old? (c) If the investment continues to grow at a constant rate, how old is the investment when the return rate is 32.8%?

If we compare the betas of various investment opportunities, why do the assets that have higher betas also have higher average expected rates of return?