Answered: Father Time asks us what is the…

Father Time asks us what is the expected return on asset A if it has a beta of .75, the expected market return is 12%, and the risk- free rate is 4%? A. 6.0% B. 6.5 C. 7.0 D. 8.0 E. 10.0

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

See similar textbooks

Related questions

Q: Compute the expected rate of return on investment i given the followinginformation: Rf = 8%; E(RM) =…

A: Expected rate of return is the minimum return which the investors would require for investing in a…

Q: Given the current risk-free rate is 9% and the market return is 12%. Investment Beta A 0.65 1.12…

A: The required rate of return represents the minimum return investors willing to accept for the given…

Q: Your estimate of the market risk premium is 5%. The risk-free rate of return is 4%, and JB Hi Fi has…

A: Market Risk Premium = 5% Risk Free Rate = 4% Beta = 1.5

Q: Assume that the risk free rate is currently 3% and that the market retunr is currently 11%.…

A: The market risk premium and required return for securities can be calculated with the help of CAPM…

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: Consider an economy where Capital Asset Pricing Model holds. In this economy, stocks A and B have…

A: In this we have to use capital assets pricing formula.

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: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: Monroe Mclntyre has estimated the expected return for Bruehl Industries to be 9.45%. He notes the…

A: The Capital Asset Pricing Model (CAPM) refers to the model which tells us how the financial markets…

Q: There is one investment and there are two different two probabilities. If the investment is in bust…

A: Given: Bust probability = 50% Expected return in bust = $100 Boom probability = 50% Expected return…

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: The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to…

A: Expected Return on Market = 10% Risk free Rate = 6%

Q: Asset A has an expected return of 22.8% and a beta of 1.8. The expected market return is 14%. What…

A: The risk free rate can be calculated as per the capital asset pricing model.

Q: Using the equation for the capital asset pricing model, calculate the (A) Find beta when required…

A: This Question has two parts. In part A we need to calculate Beta and In part B we need to calculate…

Q: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has…

A: according to sml equation: expected return=rf+beta×rm-rfwhere,rf= risk free raterm= market return

Q: Suppose the risk free rate (rfr) = 5%, average market return (rm) = 10%, and the required or…

A: Expected return = Risk free rate + beta * (market return - risk free rate )

Q: CAPM: The Treasury bill rate is 5%, and the expected return on the market portfolio is 12%. On the…

A: Risk premium = Expected return on market portfolio - Treasury bill rate Risk premium on investment =…

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: If the expected rate of return on AZNG is 12.72, its beta is 1.09 and the market risk premium is 8%,…

A: Given risk free rate = 6.00%beta =1.090Return of stock =12.72%Market risk premium = 8.00%

Q: e Treasury bill rate is 6%, and the expected return on the market portfolio is 14%. According to the…

A: We need to use CAPM to calculate required rate of return. The equation Required rate of return =Risk…

Q: Assuming a risk-free rate of 8 percent and a market return of 12 percent, would it be wise for…

A: The fundamental rate of return is calculated by using the CAPM approach. In this approach, the…

Q: An analyst has modeled the stock of Crisp Trucking using a two-factor APTmodel. The risk-free rate…

A: Factor 1: Risk premium r1p =Expected return of factor 1 - Risk free rate Risk premium r1p = (12% -…

Q: A project with a beta of 1.50, risk-free rate 7%, and the return on the market portfol ually…

A: In this we need to find out the required rate by capital asset pricing model.

Q: What is the expected risk-free rate of return if asset X, with a beta of 1.5, has an expected return…

A: The risk free rate of return can be calculated with the help of CAPM equation

Q: Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns…

Q: An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate…

A: A single factor APT can be extended further to contain more number of independent risk factors that…

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

A: Given: Risk free rate of return =4%Market risk premium =8%Beta =1.28

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: Puji International Freight Company (PIFC) wishes to determine the required return on Asset J, which…

A: Asset Risk: In the context of investments, investment risk may be described as the possibility or…

Q: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has…

A: The question is based on calculation of security market line and Capital asset pricing model. The…

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 12%. According che…

A: Given information : Treasury bill rate = 6% Expected return on market portfolio = 12% And, CAPM…

Q: What is the expected return on asset A if it has a beta of 0.5, the expected market return is 13%,…

A: The expected return on the asset can be calculated as per capital asset pricing model.

Q: A project has an assigned beta of 1.24, the risk-free rate is 3.8%, and the market rate of return is…

A: In the given question we are required to calculate the project's expected rate of return form 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: Use the basic equation for the capital asset pricing model (CAPM) to find the required return for an…

A: Following is the answer to the question

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to…

A: Since you have asked a question with multiple parts, we will solve the first 3 parts for you. Please…

Q: If the beta of Asset A is 2.2, the risk free rate is 2.5%, and the expected return on Asset A is 8%,…

A: Expected return on market refers to the money that is invested for expecting to make an investment…

Q: In an economy where the Capital Asset Pricing Model(CAPM) holds, the riskfree interest rate is 1%.…

A: Risk free rate = 1% Expected Return of Market = 16% Standard Deviation = 20% Porfolio Return = 25%…

Q: a. Calculate the required rate of return for an asset that has a beta of 1.8, given a risk-free rate…

A: Investors have different options to make investments, and the motive behind investments is to…

Q: The market risk premium is 15% and the risk-free rate is 5%. The beta of Asset D is 0.2. What is…

A: Following details are given in the question: Beta of Asset D = 0.2 Market Risk premium = 15% Risk…

Q: d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay…

Q: Find the market return for an asset with a required return of 15.996% and a beta of 1.10 when the…

A: Given information: Required return = 15.996% Beta = 1.10 Risk free rate = 9%

Q: What is the expected market return if the expected return on asset A is 19% and the risk free rate…

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

Q: Within the context of the capital asset pricing model (CAPM), assume:∙ Expected return on the market…

A: Capital asset pricing model (CAPM) represents the relationship between the risk and return of an…

Q: What is the required return on an investment with a beta of 1.3 if the riskfree rate is 2.0 percent…

A: CAPM evolved as a way to measure this systematic risk. Sharpe found that the return on an individual…

Q: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has…

A: Security market line (SML) is a graphical representation of how the approach of the capital asset…

Question

Father Time asks us what is the expected
return on asset A if it has a beta of .75, the
expected market return is 12%, and the risk-
free rate is 4%?
А. 6.0%
В. 6.5
C. 7.0
D. 8.0
E. 10.0

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: Introduction to Question:

VIEW

Step 2: Calculation of Expected return on Asset A:

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

Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of −0.3, and a beta coefficient of −1.5. Security B has an expected return of 12%, a standard deviation of returns of 10%, a correlation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier? Why?
Security A has an expected rate of return of 6%, a standard deviation of returns of 30%, a correlation coefficient with the market of −0.25, and a beta coefficient of −0.5. Security B has an expected return of 11%, a standard deviation of returns of 10%, a correlation with the market of 0.75, and a beta coefficient of 0.5. Which security is more risky? Why?
You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
If the beta of Asset A is 2.2, the risk free rate is 2.5%, and the expected return on Asset A is 8%, what is the expected return on the market (Note: you want to use CAPM)? Group of answer choices 7.28% 5.00% 8.00% 16.80%
Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 16%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.8.
Find the market return for an asset with a required return of 15.996% and a beta of 1.10 when the risk-free rate is 9%.
Using the following information determine the expected rate of return for a risky asset using CAPM, consider the following example stocks assuming that you have already computed their betas Stocks Beta A 0.70 B 1.00 C 1.15 D 1.40 E -0.30 Assume that you expect the economy RFR to be 6% (0.06) The expected return on the market portfolio (E(Rm)) to be 8% (0.08) A market risk premium of (0.04). Question: What would be the SML required rate of return for the following stocks. A, B,C,D and E
The following information is provided: The risk-free rate is 2% The expected market returns are 11% If the beta of an asset changes from 0.8 to 1.5, what is the additional return that you require on this asset (in %, please round on 2 decimals)?
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.
Using the following information determine the expected rate of return for a risky asset using CAPM, consider the following example stocks assuming that you have already computed their betas Stocks Beta A 0.70 B 1.00 C 1.15 D 1.40 E -0.30 Also assume that you expect the economy RFR to be 6% (0.06) and the expected return on the market portfolio (E(Rm)) to be 8% (0.08) which implies a market risk premium of (0.04). What would be the SML required rate of return for the following stocks: A, B, C, D and E.
What is the required return for asset X if it has a beta of 1.5, the expected market return is 15 percent, and the expected risk-free rate is 5 percent?