Check ques ch 21

An investor is considering whether to invest in shares of Stock ABC or risk-free bonds. The stock pays dividends continuously at a rate of 1%, has an expected annual yield of 9%, and has a volatility of 24%. The continuously compounded risk-free rate is 1.8%. Assuming that prices for Stock ABC follow a lognormal distribution, calculate the probability that an investment of X in Stock ABC would be worth less than an investment of X in risk-free bonds after 5 years. [DM_05c_02] You Answered 0.3975 O 0.4353 O 0.4164 Correct Answer O 0.3785 0.3596

The 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…

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An investor is evaluating the common share of Bulldogs Inc. which has a beta of 1.8. The expected return for the securities market as a whole is 8%. The risk-free rate on a treasury bill is 2%. Based on the capital asset pricing model, what is the expected risk adjusted return of the Bulldogs Inc.’s common share? (Format: X.XX%)

1. You estimate the Fama-French 3-factor model for the two stocks, A and B, and find the following coefficients. You also estimate risk premiums for each factor. Calculate the cost of equity capital (i.e., expected rate of return) for each company using the 3-factor APT model. The risk-free rate is 4%. Stock Mkt A B Risk premiums 1.1 1.0 5% SMB -1.2 -2.0 HML -1.0 -1.5 3%

Using the equity asset valuation model (CAPM) equation, determine the required return for the shares of the following companies, if the market return is 7.50% (Rm = 7.50%) and the risk-free asset return is 1.25% (RF = 1.25%). You must show all counts. Stock Beta SKT 0.65 COST 0.90 SU 1.42 AMZN 1.57 V 0.94

Solve the question step-by-step with comprehensive explanation where required.

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REQUIREMENTS: 1.  How much is the cost of equity using the capital asset pricing model? 2. How much is the cost of equity using the bond plus risk premium?

The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: REQUIRED RATE OF RETURN (Percent) 20.0 16.0 Return on HC's Stock X U 12.0 0.5 1.0 RISK (Beta) CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock 1.5 Value 2.0 (?)

a)The equity shares of Cyberdyne Plc have a beta value of 0.90. The risk-free rate of return is 5% and the market risk premium is 3%. Corporation tax is 19%. .Calculate the required rate of return on the shares of Cyberdyne Plc and explain the impact of beta on the shares of the company. b) Outline five benefits/advantages that a Stock Exchange listing could offer a company. c) Calculate the Yield to Maturity (YTM) of a £100 nominal value irredeemable bond with a coupon rate of 7% and a market value of £105. d) A 10-year corporate bond has 6 years remaining until redemption. The par value is £100and it pays a 4% coupon on an annual basis. The yield to maturity is 8%. Using the above information, calculate the market price of the bond.

As an investor you have a required rate of return of 14 percent for investments in risky stocks. You have analyzed three risky firms and must decide which (if any) to purchase. Your information as below: (i) Use the dividend-growth model to estimate the value of each stock. Justify which (if any) should you buy.(ii) If you purchased Stock A, determine your implied rate of return.(iii) Determine the price that would be required to persuade you to purchase Stock A if your required rate of return were 10%.

Assume 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.

(a) Donald is considering the merits of two securities. He is interested in the common shares ofA Co. and B Inc. The expected monthly rate of return of securities is shown below:State of Affair Probability Stock A Stock BBoom 0.1 40% -20%Normal 0.5 20% 8%Recession 0.4 -10% 15%At the time of purchase, the market value is $70/share for A and $50/share for B. Donaldplans to invest 10,000 shares of Stock A and 6,000 shares in Stock B.(i) Compute the portfolio weights of Stock A and Stock B. (ii) Compute the expected returns of Stock A and Stock B. (iii) Assume that the covariance between Stock A and Stock B is -28%2(0.0028). Computethe expected rate of return and variance of rate of return of Donald’s portfolio.(iv) If the risk-free rate is 2%, the market risk premium is 18% and the beta of Stock A is0.75, estimate the required and expected rates of return of Stock A. Should Donaldinvest in Stock A? Show the calculations.

(a)As an investor, you are holding the following investments: Stock Amount invested  beta A $40 million  1.4 B $30 million  1.0 C $60 million  0.8 You are planning to sell the holdings of Stock B. The money from the sale will be used topurchase another $20 million of Stock A and another $10 million of Stock C. The risk-free rateis 7 percent and the market risk premium is 6.5 percent. How many percentage points higherwill the required return on the portfolio be after you complete this transaction?

can you do the question b please

a. How much is the cost of equity using the capital asset pricing model? b. How much is the cost of equity using the bond plus risk premium?

Assume that a financial institution (FI) has purchased 3,500 shares of AB and 7,500shares of CD. The share’s AB current bid and offer are £48.5 and £50.1 respectivelywhile the share’s CD current bid and offer are £101.1 and £101.5 respectively. Supposefurther that the bid–offer spreads are normally distributed with a mean and a standarddeviation of 1% for AB and with a mean of 3% and a standard deviation of 4% for CD.a) Which of the two shares (AB and CD) has the higher cost in terms of execution?Explain b) Calculate the cost of liquidation in a normal market c) Calculate the cost of liquidation in a stressed market at a 95% confidence level.Using your answers to (b), what do you observe?II. Consider a European call option on a non-dividend-paying stock. The following tableshows the value (in £), the delta (Δ), the gamma (Γ) and the theta (Θ) for a longposition in one option: (see the image) a) Using the numbers in the table, if there is an increase of £0.5 in the stock price,explain…

Sections C through F please

The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 1,8 Return on HC's Stock 8.0 4.0 0 0 0.5 1.0 1.5 2.0 RISK (Beta) CAPM Elements Risk-free rate (RF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Value An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is

Your broker has recommended that you purchase stock in Beacan, Inc. Beacan recently paid its annual dividend ($14.00). The firm also boasts an ROE of 15%, of which 50% is paid as dividends. Analysts estimate that the stock has a beta of 0.79. The current risk-free rate is 2.00% and the market return (RM) is 11.10%. Assuming that CAPM holds, what is the intrinsic value of this stock?

In an economy where the risk-free interest rate is 19% and the expected return of the market is 25%, the beta coefficients of A, B, C and D stocks and the expected returns announced by the companies are as follows. According to the Financial (Capital) Assets Pricing Model c) Calculate the expected return rates of the shares.d) Determine which stocks can be invested by comparing the expected return announced by the company with the expected return you calculated.

Nero Violins has the following capital structure: Security Beta Total Market Value ($ millions) Debt 0 $ 102 Preferred stock 0.22 42 Common stock 1.22 301 What is the firm's asset beta? (Hint: What is the beta of a portfolio of all the firm's securities?) Note: Do not round intermediate calculations. Round your answer to 3 decimal places. Assume that the CAPM is correct. What discount rate should Nero set for investments that expand the scale of its operations without changing its asset beta? Assume a risk-free interest rate of 7% and a market risk premium of 8%. Ignore taxes. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

Assume a stock pays a perpetual dividend of 2 dollars, has a required rate of return of 9%, a relative bid ask spread of 0.5% and a relative trading frequency of 0.1 (μ=0.1). According to the Amihud and Mendelson (1986) model, the price of the stock would be: a.$22.10 b. $2.00 c. $9.02 d. Other e. $14.50 Give typing answer with explanation and conclusion

The following common stocks are available for investment:a. If you invest 20 percent of your funds in each of the first four securities, and 10 percentin each of the last two, what is the beta of your portfolio?b. If the risk-free rate is 8 COMMON STOCK (Ticker Symbol)                                                                               BETANanyang Business Systems (NBS) 1.40Yunnan Garden Supply, Inc. (YUWHO) 0.80Bird Nest Soups Company (SLURP) 0.60Wacho.com! (WACHO) 1.80Park City Cola Company (BURP) 1.05Oldies Records, Ltd. (SHABOOM) 0.90percent and the expected return on the market portfolio is14 percent, what will be the portfolio’s expected return?

a) The equity shares of Cyberdyne Plc have a beta value of 0.90. The risk-free rate of return is 5% and the market risk premium is 3%. Corporation tax is 19%.Calculate the required rate of return on the shares of Cyberdyne Plc and explain the impact of beta on the shares of the company. b) Outline five benefits/advantages that a Stock Exchange listing could offer a company. c) Calculate the Yield to Maturity (YTM) of a £100 nominal value irredeemable bond with a coupon rate of 7% and a market value of £105. d) A 10-year corporate bond has 6 years remaining until redemption. The par value is £100 and it pays a 4% coupon on an annual basis. The yield to maturity is 8%.Using the above information, calculate the market price of the bond.

Jones Design wishes to estimate the value of its outstanding preferred stock. The preferred issue has a par value of $70 and pays an annual dividend of ​$4.50 per share. ​ Similar-risk preferred stocks are currently earning an annual rate of return of 11.5​%.   a.  What is the market value of the outstanding preferred​ stock? b.  If an investor purchases the preferred stock at the value calculated in part a​, how much does she gain or lose per share if she sells the stock when the required return on​ similar-risk preferred stocks has risen to 13.2​%? ______________________________________________________________________________ a.  The market value of the outstanding preferred stock is ​$_________per share.  ​(Round to the nearest​ cent.) b.  If the required return on​ similar-risk preferred stocks has risen to 13.2​%, the value of the stock will be ​$_______ per share.  ​(Round to the nearest​ cent.)   If an investor purchased the preferred stock at the value calculated in part…

An investor is evaluating the common share of Bulldogs Inc. which has a beta of 1.8. The expected return for the securities market as a whole is 8%. The risk-free rate on a treasury bill is 2%. Based on the capital asset pricing model, what is the expected risk adjusted return of the Bulldogs Inc.’s common share?