Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 13, Problem 16PS
Explain why the following statements are true/false/uncertain.
a. With all else held constant. a firm will have a higher P/E if its beta is higher.
b. P/E will tend to be higher when
c. P/E will tend to be higher when the plowback rate is higher.
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Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if the:
A.beta decreases.
B.decreases as the beta of the firm's stock increases
C.either the risk-free rate or the market rate of return decreases.
D.must equal the market rate of return
4 and 6
Assume a firm has a beta of 1.2. All else held constant, the cost of equity for this firm will increase if:
the risk-free rate decreases.
the market rate of return decreases.
the market risk premium stays constant.
the beta decreases.
Chapter 13 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 13 - Prob. 1PSCh. 13 - Prob. 2PSCh. 13 - If a security is underpriced [Lew intrinsic value...Ch. 13 - Deployment Specialists pays a current (annual)...Ch. 13 - Jand, Inc, currently pays a dividend of 1.22,...Ch. 13 - A firm pays a current dividend of 1, which is...Ch. 13 - Tri-coat Paints has a current market value of 41...Ch. 13 - A firm has current assets that could be sold for...Ch. 13 - Prob. 9PSCh. 13 - Miltmar Corporation will pay a year-end dividend...
Ch. 13 - Sisters Corp. expects to earn 6 per share next...Ch. 13 - Prob. 12PSCh. 13 - Prob. 13PSCh. 13 - A common stock pays an annual dividend per share...Ch. 13 - The risk-free rate of return is 5 , the required...Ch. 13 - Explain why the following statements are...Ch. 13 - a. Computer stocks currently provide an expected...Ch. 13 - Prob. 18PSCh. 13 - a. MF Corp. has an ROE of 16 and a plowback ratio...Ch. 13 - The market consensus is that Analog Electronic...Ch. 13 - The FE Corporation’s dividends per share are...Ch. 13 - The stock of Negro Corporation is currently...Ch. 13 - The risk-free rate of return is 8 , the expected...Ch. 13 - Prob. 24PSCh. 13 - Chiptech, Inc., is an established computer Chip...Ch. 13 - Prob. 1CPCh. 13 - 2. Phoebe Black‘s investment club wants to buy the...Ch. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Prob. 5CPCh. 13 - Prob. 6CPCh. 13 - Prob. 7CPCh. 13 - Prob. 8CPCh. 13 - 9. To continue with Sundanci, Abbey Naylor. CFA,...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- a. Given the following information, calculate the expected value for Firm C’s EPS. Datafor Firms A and B are as follows: E(EPSA) =$5.10, σA =$3.61, E(EPSB) =$4.20, and σB = $2.96. b. You are given that σC = $4.11. Discuss the relative riskiness of the three firms’ earnings.arrow_forwardPlease DON'T use excel in solving this question.arrow_forwardA firm whose performance is not overly sensitive to economy-wide changes will likely have a beta risk that: а. Exceeds 1. b. Is less than 1. Is exactly 1. с. d. Is zero.arrow_forward
- Which of the following statements is correct? With all else held constant, a firm will have a higher P/E if its market capitalization rate is higher. P/E will tend to be higher when ROE is higher (assuming plowback is positive). P/E will tend to be higher when the plowback rate is higher.arrow_forwardAssume a CAPM world. If a firm has positive leverage, the Beta of its equity is higher than its unlevered Beta (the Beta as if the firm had no leverage). Group of answer choices True Falsearrow_forwardConsider the following hypothetical firms with their respective beta ABC- 1 MNO- 0 QRS- 1.2 XYZ- 0.85 i. Which firm has the highest risk? ii. Which firm is risk free? iii. Which firm’s returns will be equal to the market returns? arrow_forward
- Suppose you have the follow information about Intrinsic Co. and the market. What is the Beta of Intrinsic Co.? Probability 0.48 0.35 0.17 a) 1.39 Ob) 1.13 c) 1.00 d) 1.26 Intrinsic Co. Returns 15.4% 17.9% 21.5% Market Returns 9.1% 10.8% 13.5%arrow_forward4. For a particular share, a 1 per cent change in the market index return generally leads to a return of less than 1 per cent on the company’s share. What can be concluded about the value of beta (β)? A) β = 1 B) β = -1 C) β < 1 D) β > 1arrow_forwardRemember the following the 1-factor model or CAPM is defined as re-rf beta * [rm -rf] what is the return on equity (re) if rf = 0.05 rm = 1.88 beta = 1.47arrow_forward
- A firm whose performance is sensitive to economy-wide changes will likely have a beta risk that:Select one:a. Is less than 1.b. Is zero.c. Exceeds 1.d. Is exactly 1.arrow_forwardGive typing answer with explanation and conclusionarrow_forwardHow would I do the same calculation if Beta is 1.2? That would be 1-1.2= -0.2 invested in the money market. How does that make sense?arrow_forward
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