assume that the risk free interest rate is 3%, the market rate of return is 7% and the beta for the company X is 2. given this information, the non-diversifiable risk for this company is? The required rate of return for this company is?

assume that the risk free interest rate is 3%, the market rate of return is 7% and the beta for the company X is 2. given this information, the non-diversifiable risk for this company is? The required rate of return for this company is?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 15MC: Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds)...

See similar textbooks

Related questions

Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm- R;) is 89%. If…

A: Financial management consists of directing, planning, organizing and controlling of financial…

Q: Which of the following statements is TRUE? O A. If the risk-free rate is 1.5% and the market risk…

A: Capital Asset Pricing Model: According to the Capital Asset Pricing Model (CAPM), the link between…

Q: You estimate of the market risk premium is 7%. The risk-free rate of return is 3.1 % and General…

A: In the given question we are require to calculate the expected return of General Motors from the…

Q: Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5% and…

A: Overpriced securities are those securities whose required rate of return is more than the expected…

Q: What is required return using the capital asset pricing model if a stock's beta is 1.2 and the…

A: Required Return = Risk free Rate + Beta * (market return - risk free rate)

Q: Assume that the risk-free rate of return is 4% and the market risk premium (Le., Rm- R:) is 896. If…

A: Financial management consists of directing, planning, organizing and controlling of financial…

Q: What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk - free…

A: Capital Pricing Model (CAPM) is an investment theory that shows the relationship between the…

Q: The risk free rate currently have a return of 2.5% and the market risk premium is 4.22%. If a firm…

A: Cost of equity refers to the net cost that a business entity bears by raising the capital from the…

Q: The company has a beta of 0.85. If the risk-free rate is 3.4% and the market premium is 8.5%, what…

A: Beta of stock = 0.85 Risk free rate = 3.4% Market premium = 8.5% From this information we need to…

Q: You have estimated a firm's beta value to be 1.2. The expected return of the market portfolio is 12%…

A: We require to calculate the required rate of return for the firm in this question. We can solve this…

Q: The company has a beta of 0.85. If the risk- free rate is 3.4% and the market premium is 8.5%, what…

A: In the given question we require to calculate the cost of common equity from the following details:…

Q: Kaiser Aluminum has a beta of 0.70. If the risk-free rate (RRF) is 5.0%, and the market risk premium…

A: Following details are given : Beta = 0.70 Risk free rate (RRF) = 5.0% Market risk premium (RPM) =…

Q: Suppose your company has an equity beta of 0,9 and the current risk-free rate is 7,1%. if the…

A: We require to calculate cost of equity capital in this question.

Q: a. A company wants to estimate its required rate of return using the Capital Asset Pricing Model…

A: The minimum return that an investor will accept on investment is called the required rate of return.…

Q: calculate the cost of equity for the Collins Company using the capital asset pricing model.

A: Given information is: Assume that the Collins Company has a beta of 1.8 and that the risk-free rate…

Q: Suppose the rate of return on short-term government securitles (percelved to be risk-free) Is about…

A: According to CAPM model, Ke=Rf+beta ×Rm-Rf where, Rf = risk free return Rm= market return

Q: Company XYZ has a CAPM beta of 1.5. The expected return on the market is 20% and the risk-free rate…

A: Expected return can be calculated by using CAPM equation given below Expected return =Risk free…

Q: Assume that Blast Company has a Beta of 0.85, the Risk Free Rate is 2.0% and the Expected Market…

A: We Require to calculate required rate of return for Blast company in this question. We can calculate…

Q: Suppose that the risk-free rate is 3.00% per annum. In addition, assume that the market portfolio…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub- parts…

Q: 1. Assume the risk free interest rate is 3%, the market rate of return is 7% and beta for company X…

A: AS you have posted multiple questions, we will solve first question for you. If you want remaining…

Q: Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Rer) is 5.0%, and the market risk premium…

A: A model that represents the relationship of the required return and beta of a particular asset is…

Q: Treasury bills currently have a return of 2.5% and the market risk premium is 7%. If a firm has a…

A: The cost of equity can be calculated with the help of CAPM equation. The risk free rate is usually…

Q: a) Risk can be separated into systematic and unsystematic risk. Define systematic and unsystematic…

A: The fraction of total risk produced by conditions beyond a company's or individual's control is…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - Rf) is 8%. If…

A: Financial statements are statements which states the business activities performed by the company .…

Q: K.J. Lee, CFA, an analyst with Water's Edge Securities, estimates the market risk premium is 6.80%…

A: A model that represents the relationship of the required return and beta of a particular asset is…

Q: Assume that the risk-free interest rate is 3%, the market rate of return is 7% and the beta for…

A: The comparison of the whole market with the systematic risk or volatility of a stock or the…

Q: Assume the risk free interest rate is 3%, the market rate of return is 7% and beta for company X is…

A: 1) Non diversifiable risk for the company = Market rate of return - risk free rate

Q: The risk-free rate and the expected market rate of return are 6% and 16%, respectively. According to…

A: In the above question we need to calculate the Expected rate of return of stock where, Risk free…

Q: The expected market return is E(RM)is estimated to be 12% per annum, while the risk-free return (rf)…

A: This question can be answered with the help of Capital Asset Pricing Model(CAPM). Ke=Rf+β(K m -Rf)…

Q: Suppose the current risk-free rate of return is 3.5%, and the expected market return is 9%. Fashion…

A: In the following question we require to calculate the firm's cost of retained earnings using CAPM…

Q: Suppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereas stock B has a…

A: Total risk of the stock can be calculated by squaring the values of the stock volatility. It can…

Q: 10f

A: Calculate the expected return as follows: Expected return = Risk free rate + (beta * Market risk…

Q: Suppose your company has an equity beta of .62 and the current risk-free rate is 4.1%. If the…

A: Equity capital refers to funds raised by a firm by diluting its equity or ownership. With issue of…

Q: If the return on the risk-free asset is 2.25% (Rf = 2.25%) and the market return is 6.50% (Rm =…

A: Beta shows magnitude of systematic risk related to stock. It shows volatility in stock returns over…

Q: The current beta for The Garner Company is 1.6. The risk-free rate of return is 3%, whereas the…

A: Current beta = 1.6 Risk free rate (Rf) = 3% Market risk premium (Rm - Rf) = 7%

Q: Assume the risk free rate is 4% and the beta for a particular firm is 2, current firm share price is…

A: We are require to calculate the required rate of return: Required rate of return can be calculated…

Q: Suppose the beta of this value based company is 0.85, the risk-free rate is 2 percent, and the…

A: The capital asset pricing model is used for calculation of expected rate of return on the basis of…

Q: Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Rs) is 5.0%, and the market risk premium…

A: The capital asset pricing model is the model of valuing a stock's required rate of return on the…

Q: the capital asset pricing model.

A: The Capital Asset Pricing Model (CAPM) is a very popular model used in finance to describe the…

Q: Fisher Corp has a beta value of 0.5. If the risk free rate is 2.5% and the Market Risk Premium is…

A: Given information : Beta value = 0.5 Risk free rate = 2.5% Market risk premium = 11% From these…

Q: A financial analyst for the ZZZ Corporation uses the Security Market line to estimate the cost of…

A: In the given question we require to calculate the value of [E(Rm) - Rf ] RE = Cost of Equity = 13%…

Q: Suppose the market risk premium is 4.0 % and the risk-free interest rate is 3.0%. Use the data below…

A: In the given question we need to compute the expected return of investing in H.J. Heinz.

Q: Vargo, Inc., has a beta estimated by Value Line of 1.3. The current risk-free rate (long-term) is…

A: The cost of common equity can be estimated with the help of CAPM equation.

Q: Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Res) is 5.0%, and the market risk premium…

A: Capital Asset Pricing Model(CAPM) is the model which shows the relationship between the systematic…

Q: The Beta Company produces pneumatic equipment. Its beta is 1.8, the market risk premium is 9.5%, and…

A: Following details are given to us regarding Beta company : Beta = 1.8 Market risk premium (Rm-Rf) =…

Q: 11f

A: Calculate the expected return as follows: Expected return = Risk free rate + (Beta * Market risk…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (ie, Rm - Rp) is 8%. If…

A: Financial statements are statements which states the business activities performed by the company .…

Q: The risk-free rate of return is currently 0.04, whereas the market risk premium is 0.06. If the beta…

A: In this question we need to compute the expected return on RKP. We can solve this que with CAPM…

Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

assume that the risk free interest rate is 3%, the market rate of return is 7% and the beta for the company X is 2. given this information, the non-diversifiable risk for this company is?

The required rate of return for this company is?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

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

Given an expected market risk premium of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4.0%, what is the expected return for Benson Industries?
Assume that the risk-free interest rate is 3%, the market rate of return is 7% and the beta for company X is 2. Given this information, the non-diversifiable risk for this company is Group of answer choices 4% 6% 8% 2
Your estimate of the market risk premium is 8%. The risk−free rate of return is 3.1% and General Motors has a beta of 1.5. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Rs) is 5.0%, and the market risk premium (RPM) is 7.4%, what is the firm's cost of equity from retained earnings based on the CAPM? Your answer should be between 8.70 and 11.25, rounded to 2 decimal places, with no special characters.
The current beta for The Garner Company is 1.6. The risk-free rate of return is 3%, whereas the market risk premium is 7%. How much would the cost of equity rise if the company extends its operations to the point where its beta reaches 1.9?
Suppose the beta of this value based company is 0.85, the risk-free rate is 2 percent, and the expected market rate of return is 10 percent. Calculate the expected rate of return. The answer is closest to: Group of answer choices 10.5 percent 13.1 percent 6.5 percent 9.0 percent
Kaiser Aluminum has a beta of 0.70. If the risk-free rate (RRF) is 5.0%, and the market risk premium is (RPM) is 7.4 % what is the firm's cost of equity from retained earnings based on the CAPM?Your answer should be between 8.70 and 11.25, rounded to 2 decimal places, with no special characters.
Breckenridge, Inc., has a beta of 0.97. If the expected market return is 12.0 percent and the risk-free rate is 6.0 percent, what is the appropriate expected return of Breckenridge (using the CAPM)?
Suppose the beta of PetrolCom is 0.75, the risk - free rate is 3 percent, and the market risk premium is II percent. Calculate the expected rate of return on PertrolCom.
The Treasury bill rate is 6%, and the expected return on the market portfolio is 14%. According to the capital asset pricing model: a. What is the risk premium on the market?b. What is the required return on an investment with a beta of 1.4? c. If an investment with a beta of 0.6 offers an expected return of 8.4%, does it have a positive or negative NPV?d. If the market expects a return of 11.6% from stock X, what is its beta?
Assume that the Collins Company has a beta of 1.8 and that the risk-free rate of return is 2.5 percent. If the equity-risk premium is six percent, calculate the cost of equity for the Collins Company using the capital asset pricing model.
The risk-free rate is 1.45% and the market risk premium is 5.21%According to the Capital Asset Pricing Model (CAPM ), a stock with a beta of 1.13 will have an expected return of %.