Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 6, Problem 11SP
a.
Summary Introduction
To determine: The average returns and standard deviation of Company Z and for the Market.
b.
Summary Introduction
To determine: The required return for Company Z.
c.
Summary Introduction
To discuss: The ways historical average return with return be appropriate given the systematic risk.
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(Related to Checkpoint 8.3) (CAPM and expected returns)
a. Given the following holding-period returns, compute the average returns and the standard deviations for the Sugita Corporation and for the market.
b. If Sugita's beta is 1.03 and the risk-free rate is 7 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free
rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)
c. How does Sugita's historical average return compare with the return you should expect based on the Capital Asset Pricing Model and the firm's systematic risk?
a. Given the holding-period returns shown in the table, the average monthly return for the Sugita Corporation is 2.167 %. (Round to three decimal places.)
The standard deviation for the Sugita Corporation is 3.19 %. (Round to two decimal…
a. Given the following holding-period returns, (Below)compute the average returns and the standard deviations for the Sugita Corporation and for the market.
b. If Sugita's beta is 1.18and the risk-free rate is 4 percent, what would be an expected return for an investor owning Sugita? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)
c. How does Sugita's historical average return compare with the return you should expect based on the Capital Asset Pricing Model and the firm's systematic risk?
a. Given the following holding-period returns,
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compute the average returns and the standard deviations for the Zemin Corporation and for the market.
b. If Zemin's beta is
1.87
and the risk-free rate is
6
percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)
c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?
Month
Zemin Corp.
Market
1
5
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6
%
2
2
1
3
2
0
4
−4
−1
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6
3
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Chapter 6 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 6 - a. What is meant by the investors required rate of...Ch. 6 - Prob. 2RQCh. 6 - What is a beta? How is it used to calculate r, the...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - What effect will diversifying your portfolio have...Ch. 6 - (Expected return and risk) Universal Corporation...Ch. 6 - (Average expected return and risk) Given the...
Ch. 6 - (Expected rate of return and risk) Carter, Inc. is...Ch. 6 - (Expected rate of return and risk) Summerville,...Ch. 6 - Prob. 5SPCh. 6 - Prob. 9SPCh. 6 - Prob. 10SPCh. 6 - Prob. 11SPCh. 6 - Prob. 12SPCh. 6 - (Capital asset pricing model) Using the CAPM,...Ch. 6 - Prob. 16SPCh. 6 - Prob. 17SPCh. 6 - a. Compute an appropriate rate of return for Intel...Ch. 6 - (Estimating beta) From the graph in the right...Ch. 6 - Prob. 20SPCh. 6 - Prob. 21SPCh. 6 - (Capital asset pricing model) The expected return...Ch. 6 - (Portfolio beta and security market line) You own...Ch. 6 - (Portfolio beta) Assume you have the following...Ch. 6 - Prob. 1MCCh. 6 - Prob. 2MCCh. 6 - Prob. 3MCCh. 6 - Prob. 4MCCh. 6 - Prob. 5MCCh. 6 - Prob. 6MCCh. 6 - Prob. 7MCCh. 6 - Prob. 8MCCh. 6 - Prob. 9MCCh. 6 - Prob. 10MCCh. 6 - Prob. 11MC
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