Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259722615
Author: Richard A Brealey, Stewart C Myers, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 12, Problem 17QP
Summary Introduction
To compute: The expected
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The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is the required rate of return on the stock, E(Ri)?
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Chapter 12 Solutions
Fundamentals of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 12 - Prob. 1QPCh. 12 - Prob. 2QPCh. 12 - Prob. 3QPCh. 12 - Specific versus Market Risk. Figure 12.11 shows...Ch. 12 - Prob. 7QPCh. 12 - Prob. 8QPCh. 12 - Prob. 9QPCh. 12 - Prob. 10QPCh. 12 - Prob. 11QPCh. 12 - Prob. 12QP
Ch. 12 - Prob. 14QPCh. 12 - Prob. 15QPCh. 12 - Prob. 16QPCh. 12 - Prob. 17QPCh. 12 - Prob. 18QPCh. 12 - Prob. 19QPCh. 12 - Prob. 20QPCh. 12 - Prob. 21QPCh. 12 - Prob. 22QPCh. 12 - Prob. 23QPCh. 12 - Prob. 24QPCh. 12 - Prob. 25QPCh. 12 - Prob. 26QPCh. 12 - Prob. 27QPCh. 12 - Prob. 28QPCh. 12 - Prob. 29QPCh. 12 - Prob. 30QPCh. 12 - Prob. 31QPCh. 12 - Prob. 32QPCh. 12 - Prob. 33QPCh. 12 - Prob. 34QP
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- The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock's beta is 2.27. What is the required rate of return on the stock, E(Ri)?arrow_forwardUse the expected return-beta equation from the CAPM. What is the expected return for a stock if the risk-free rate is 4%, beta 0.9 and the expected return for the market portfolio is 6%?arrow_forwardAssume the following data for a stock: Risk - free rate market) == 1.5; beta (size) = 0.3; beta (book-to-market) = 5 percent; beta ( = - 1.1; market risk premium 1 7 percent; size risk premium 3.7 percent; and book - to - market risk premium = 5.2 percent. Calculate the expected return on the stock using the Fama - French three-factor model.arrow_forward
- 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.)arrow_forwardAssume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required return on the market, on a stock with a beta of 1.0, and on a stock with a beta of 1.2?arrow_forwardAssume that the risk-free rate is 3.6% and the market risk premium is 4%. What is the required rate of return on a stock with a beta of 1.4?arrow_forward
- Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?arrow_forwardThe rate of return on the market stock index is 13 percent. The rate of return on a risk-freebank account is 1%. The B (beta) of stock XYZ is 1.5. Use the data to answer the questionsbelow.a. What is the market risk premium? Show your work.b. What is the cost of equity for XYZ? Show your work.c. What is the stock XYZ risk premium? Show your work.d. Draw the graph of the Security Market Line and show the stock of XYZ on the graph.The end-of-year dividend on stock ABC is expected to be $0.8. The growth rate of dividend isexpected to be 5 percent for ever. The current price of the ABC stock is $10. Use the data toanswer the questions below.e. What is the cost of equity for stock ABC? Show your work.f. Suppose stock KLM has the same end-of-year dividend, dividend growth rate andprice as stock ABC, but the risk of KLM stock is much greater than of the ABC stock.What is your estimate of the cost of equity of stock KLM using the method at part e?Do you agree with the valuation of the cost of…arrow_forwardBeta and expected returnarrow_forward
- The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 4%. Use a 7% risk premium for the market portfolio. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company. Caterpillar Apple Johnson & Johnson Consolidated Edison Beta 0.98 1.35 0.69 0.13 Cost of Capital % % %arrow_forwardCompany A has a beta of 0.9 , while Company B's beta is 1.4 . The market risk premium is 13.78 %, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: find the required returns on each stock and then subtract them.)arrow_forwardSuppose that the risk-free rate is 5% and that the market risk premium is 7%.What is the required return on (1) the market, (2) a stock with a beta of 1.0,and (3) a stock with a beta of 1.7?arrow_forward
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