Expected return: Expected return of the market refers to the return earned from the market over and above the risk-free rate of return . Risk-free rate of return, is the return that an investor must demand for inflation and the time-value of money, even when there is hardly any risk of any financial loss. Risk premium varies with the systematic risk in an investment. It is the market risk premium multiplied by the beta (ß) of a security. It is determined as the market risk premium multiplied by the beta of the security. The market risk premium is equal to the expected market return less the return earned from risk-free security. The expected return can be calculated using the formula given below. Where, is the expected return. is the risk free rate of return. is the beta of the asset. is the expected return of the market. To determine: The expected return of Company JJ.

Question

Want to see the full answer?

Answer 1

Question

Chapter 12, Problem 28P

Summary Introduction

Expected return:

Expected return of the market refers to the return earned from the market over and above the risk-free rate of return. Risk-free rate of return, is the return that an investor must demand for inflation and the time-value of money, even when there is hardly any risk of any financial loss. Risk premium varies with the systematic risk in an investment. It is the market risk premium multiplied by the beta (ß) of a security. It is determined as the market risk premium multiplied by the beta of the security. The market risk premium is equal to the expected market return less the return earned from risk-free security.

The expected return can be calculated using the formula given below.

Where,

is the expected return.

is the risk free rate of return.

is the beta of the asset.

is the expected return of the market.

To determine:

The expected return of Company JJ.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Answer it

QUESTION #1: A) What is the Net Operating Profit After Tax (NOPAT) for 2024?B) What is the Operating Cash Flow for 2024? C) What is the Free Cash Flow for 2024? Note: Marketable securities are non-operating current assets, and short-term debt (bank loan) is a non-operating current liability. Both of these items are excluded from the calculation of net operating working capital. D) If the stock trades for $85 per share at the end of 2024, and there are 315,000 shares outstanding, what is the MVA in 2024? E) Given that the firm’s WACC is 14%, what is the EVA during 2024? F) Create common size income statement and balance sheet for 2024, 2023 and 2022. G) Using 2022 as the base year, create income statement and balance sheet percentage change analysis for 2024 and 2023. QUESTION #2: In addition to the AAA Ltd. financial statements in Problem One, you are given more information as follows. Sales are forecast to increase by 80% in 2025. Short-term Debt, Long-term Debt, and Common…

Brightwoodę Furniture provides the following financial data for a given enod: Sales Less Variable E Contribwaon Margin Less Fixed Expenses et Income - Aount ($) Per Unit ($) 150,000 3 L96,000 13 10 35,000 25,000 a. What is the company's CM ratio? b. If quarterly sales increase by $5,200 and there is no change in fixed expenses, by how much would you expect quarterly net operating income to increase?