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1. Barker Corp. has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Barker's required rate of return? Answer D | | | |2010 |21.00% | |2009 |-12.50% | |2008

This study explores the (troubling) empirical evidence bearing on capital asset pricing theories. General formulas for the coefficient on beta and it standard error are derived, which show that the outcomes of cross-sectional tests have no causal relation to the pricing models. If a test refutes a model, this could be because the model is misspecified or because poor proxies for true expected returns and betas are used. Simulation and calibration results suggest that realized returns are a much poorer

That is, could you earn a risk premium on the part of your risk that you could have eliminated by diversifying? h. The expected rates of return and the beta coefficients of the alternatives as supplied by the bank’s computer program are as follows: Security Return ([pic]) Risk (β)

Pioneer Petroleum Cases Analysis The Problem: Pioneer Petroleum Corporation (PPC) has two major problems that are interfering with the goal of the firm to maximize shareholder wealth. The first is that PPC has been calculating their weighted average cost of capital incorrectly, by incorrectly calculating their after tax cost of debt and their cost of equity. This miscalculation has subjected PPC to more risk and has hurt the company’s ability to make appropriate investment decisions. This has

Relationship between Return and Market Value of Common Stock,” Journal of Financial Economics Barra, 2007, Barra Risk Model Handbook, MSCI Barra, www.Barra.com/ support/library. Fernandez, P., J. Aguirreamalloa, and L. Corres, 2011, “US Market Risk Premium used in 2011 by Profe

FNCE 370v8: Assignment 4 Assignment 4 is worth 5% of your final mark. Complete and submit Assignment 4 after you complete Lesson 12. There are 12 questions in this assignment. The break-down of marks for each question is presented in the table below. Please show all your work as this will help the marker give you part marks as well as serve as a good study aid as you prepare for the Final Examination. Question | Marks Available | Reference | 1 | 5 | Lesson 10 | 2 | 5 | Lesson 10 | 3 | 5 |

A Current D/V using market values: 41.% B Risk-free return (rf): 4.58% B Equity beta: 0.97 B Market risk premium (rm - rf): 7.43% B Levered cost of equity (re) at current D/V: 11.79% C Cost of debt (rd): 3.43% C Corporate tax rate (t): 41.63% D Unlevered cost of equity (re) at D/V = 0% 9.36% E Average cost of capital (r*) at D/V = 60%: 7.03% A) Current level of leverage: The current level of leverage for Marriott Corporation is 41% as it the market leverage in the exhibit 3, which

rates – 1,3% Rd = 7,925% + 1,3% = 9,225% Restaurants Floating Debt (25%) - 6,9% Fixed Debt (75%) - 8,72% Total debt = 25%*6,9% + 75%*8,72% = 8,265% Premium above Gov. rates – 1,3% Rd = 8,265% + 1,3% = 9,565% We assume that the fixed debt in the Lodging division would have a longer duration than that in the Restaurants division, hence we used 30- year Gov. bond rate for fixed debt in Lodging division

Midland Resources 1. How are Mortensen’s estimates of Midland’s costs of capital used? How, if at all, should these anticipated uses affect the calculations? The cost of capital is the minimum acceptable rate of return for new investments in the corporation. Estimates of Midland’s cost of capital are used in many analysis within Midland, including asset appraisal for both capital budgeting and financial accounting, performance assessments, M&A proposals, and stock repurchase decisions. These

= 0.123 or 12.3 percent Chapter 9 Problem 3 You have been assigned the task of estimating the expected returns for three different stocks: QRS, TUV, and WXY. Your preliminary analysis has established the historical risk premiums associated with three risk factors that could potentially be included in your calculations: the excess return on a proxy for the market portfolio (MKT), and two variables capturing general macroeconomic exposures (MACRO1 and MACRO2). These values