In 2021, the annualized standard deviation of Merck & Co., Inc. (MRK) was 8.92% versus 10.34% for the market. With an assumption that the correlation between MRK's return and the market return is 0.73, MRK’s beta is closest to
Q: an investor wants to save money to purchase real estate. he buys an annuity with quarterly payments…
A: Annuity The investment made by the investor on a regular basis are known as an annuity. Investments…
Q: You invest $10,000 into an account that earns 4.5% simple interest each year. Give an equation…
A: Amount invested in the account is $10,000 Simple interest rate is 4.5% Time period is 30 years To…
Q: Suppose that at the end of 2021 the one-year interest rate was 9.75% and the two-year interest rate…
A: Based on the interest rates given, we have to interpret the yield curve and calculate the expected…
Q: A situation in which one focuses on individual decisions rather than looking at them in the context…
A: A situation in which focus is on the individual decision , rather than focusing on the big picture…
Q: A stock has a beta of 1.08, the expected return on the market is 0.09, and the risk-free rate is…
A: Here, Beta = 1.08 Expected return on the market = 0.09 Risk-free rate = 0.06 To Find: Expected…
Q: Chelsea's Boutique received an invoice dated August 30th for $1,875.00, with terms of 2/10, 1/15,…
A: The companies gives discount for cash payments but if the payment done within that period but not…
Q: (b) With a constant monthly payment of $40 per month, how many years would it take to pay off the…
A: Credit card are very common now days but the charges are very much so one has to very careful when…
Q: Why is the years of deposit calculated at 4 years? And also could you elaborate more on the…
A: Given: However, instead of committing this money to the market immediately, she decides to wait for…
Q: Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all…
A: The market value of the company refers to the worth of the company as determined by the market…
Q: a. Use the appropriate formula to determine the periodic deposit. b. How much of the financial goal…
A: Solution:- When an equal amount is deposited each period at end of period, it is called ordinary…
Q: At Modern Lumber Inc, Moise Ngwenya the producer of apple crates sold to growers, has been able with…
A: Data given: Current situation: No. of crates produced per 100 logs=240 Labor hour required to…
Q: Using the accompanying Retirement Calculator spreadsheet model, Claire wants to use Scenario Manager…
A: In this case, we have to find the FV of a growing annuity over different scenarios. Since we have to…
Q: Westco Company issued 11-year bonds a year ago at a coupon rate of 8.9 percent. The bonds make…
A: Given, The par value is $1000 Coupon rate is 8.9% Yield to maturity is 7.2%
Q: A 10-year annuity pays $C to the owner on July 1 of each year, starting from 2023. Using a discount…
A: Value of the annuity as on Jan 1, 2022 = $100 Value of the annuity as on July 1, 2022 is calculated…
Q: 1f)Julio purchased a $1,000 corporate bond with a 4% coupon rate. The bond is currently quoted at…
A: A company can raise capital through equity or debt or through a mix of both equity and debt. This…
Q: ow long will it take for a $ 5000 investment to grow to $6000 at an annual rate of 13%, compounded…
A: Due to the compounding of interest over the period of time the interest accumulated is much more…
Q: D Question 14 The original product life-cycle theory predicts that O none of the other answers. over…
A: Life cycle theory refers to the theory in which household members assume to choose the expenditures…
Q: You are choosing between two projects. The cash flows for the projects are given in the following…
A: Here,
Q: 19. Consider the following covariances between securities: Duke Microsoft Wal-Mart Duke 0.0568…
A: Portfolio A portfolio consists of multiple financial instruments in which investors can invest in…
Q: Jim Green wants to receive $3,500 each year for 12 years. How much must Jim invest today at 12%…
A: Present value is equivalent amount of investment that is needed today based on interest rate and…
Q: ou buy 100 shares of Demolishing Dividend Corporation at the beginning of year 1 for R80.…
A: The geometric average return take into account the compounding impact on the overall return and…
Q: a) You have a bank account that earns 6.8% interest rate. How much must you deposit (prinicipal) in…
A: The Future Value is calculated with the help of following formula Future Value = Principal Amount ×…
Q: Which of the following is true? OaNon-Australian companies may desire to issue bonds in the…
A: Regulations of the bond market help to regulate the bond market. These regulations include the…
Q: How many units of each stock will Stephanie buy? Support your response with relevant computations.…
A: Given: Particulars Pan Elixir Rebound Cheers Think local Last year dividend $2.50 $0.50 $1.00…
Q: Edward Food Processing Company is a wholesale distributor of biscuits in Holborn. The Company has…
A: The sales volume at which a business starts to lose money is called the breakeven point. A…
Q: Rosens Department Store Tu's in Stock Stock at Inventory Records Date January 1 July 8 August 3…
A: FIFO means First In First Out i.e., materials purchased first is first sold out. Working Note #1…
Q: While visiting one of my friends at a local bank, I overheard a high ranking bank executive tell one…
A: A statement has been made about a plain vanilla interest rate swap contract. We have to examine its…
Q: A bond with six years left to maturity has a coupon rate of 9% and a par value of $1,000. How much…
A: Annual coupon payment = Coupon rate*Par value of bond = 0.09*$1000 = $90 Number of years left to…
Q: Financial Break-Even Ayden’s Toys, Inc., purchased a $435,000 machine to produce toy cars. The…
A: We need to find the break even sales volume for the investment into a new machine. At the financial…
Q: United Residential is a real-estate developer considering a 40-unit apartment complex in a growing…
A: The monthly rental should be based on the total cost involved in that includes the land ,building…
Q: Suppose a stock had an initial price of $34 per share, paid a dividend of $1.18 per share during the…
A: To compute the total return, we should sum the dividend received during the period and the capital…
Q: Calculate the annual premium for the following policy. (Use Table 20.1.) (for females subtract 3…
A: We have to find the annual premium for the given policy. Table has been provided for the annual…
Q: Should you invest in the stocks of a publicly traded company like Facebook? If yes why and if no why…
A: Facebook is an American multinational technology company. It was founded in the year 2004 by Mark…
Q: Danny has P13760 in cash and he would like to invest it in business. His estimates of the year by…
A: As per the given information: Amount in cash - P13760Receipts and…
Q: Calculate the average collection period for Roman Inc. if its accounts receivables were $550 at the…
A: Information Provided: Accounts receivables = $550 Sales = $3000
Q: Jim Smith believes that in 30 years he will need $80,000 to buy a retirement cottage. Assuming he…
A: Time value of money states that a dollar today is worth more sometime in the future because they…
Q: Compute the traditional payback period (PB) and the discounted payback period (DPB) for a project…
A: Payback period and discounted payback period A traditional method that helps calculate the number of…
Q: Mark has a portfolio of bonds worth $30,000. They are all 6% bonds with a maturity in 15 years. New…
A: A company issues bonds in order to raise capital. Note that bonds are debt instruments and hence a…
Q: You are the product actuary for company A+ Life. You have developed a five-year decreasing annuity…
A: Macaulay duration shows how much time required to recover initial investment of projects with the…
Q: Please explain the risks the buyer of a loan participation is exposed to
A: There are many risks involved in loan and it is very risky to give loans because of default on loan…
Q: Find the present value of an annuity of $3000 per year at the end of each of 6 years after being…
A: The Present Value of Deferred Annuity refers to the concept which dictates the discounted value of a…
Q: You bought one of Great White Shark Repellant Company's 8 percent coupon bonds one year ago for…
A: A bond is where the borrower promises to pay the interest and the principal on maturity to the…
Q: You have an HO policy with the following limits: A $75,000 (dwelling) B-S 7,500 (other structures)…
A: Characteristics of an HO policy have been provided. We have to find the amount insured will claim…
Q: To purchase a specialty guitar for his band, for the last three years JJ Morrison has made payments…
A: Data given: Part I Monthly payment = $106 (at the end of each month) n=3 years Interest=4.61%…
Q: Stephanie Carter has been gifted a sum of $50,000 by her grandparents on completing her graduation…
A: Given, Amount gifted is $50,000 tax rate is 25%
Q: Mr. Hippo owns 10000 shares of lowland corporation common stock which he purchaed on March 8, 2011…
A: Gain / Loss is calculated by deducting purchase price from selling price in stocks. Here 10000…
Q: Will Stephanie have enough funds for her investment in stocks and bonds, when needed? What will be…
A: Given: Particulars Pan Elixir Rebound Cheers Think local Last year dividend $2.50 $0.50 $1.00…
Q: 3. A loan of $50,000 due in one year is to be repaid by three equal payments due today, six months…
A: A loan is one where the lender provides money to the borrower on interest. The lender received…
Q: 12. Calculating EAR Find the EAR in each of the following cases. Stated Rate (APR) Number of Times…
A: Effective Annual Rate The rate of return on an investment made or the interest rate on a loan is…
Q: The standard deviation of IWM return and the standard deviation of EEM return?
A: Here, To Find: Standard deviation of IWM =? Standard deviation of EEM =?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
In 2021, the annualized standard deviation of Merck & Co., Inc. (MRK) was 8.92% versus 10.34% for the market. With an assumption that the correlation between MRK's return and the market return is 0.73, MRK’s beta is closest to
1.02.
0.89.
0.63.
0.37.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- During the past 5-year, the monthly average return and standard deviation of Netflix (NFLX) stock were 3.5% and 10%, respectively. For the same period, the monthly average return and standard deviation of Verizon (VZ) were 0.6% and 4.6%, respectively. The correlation between NFLX and VZ was -0.1. Assume that the monthly risk-free rate is 0.1%. ) What is the Sharpe ratio for NFLX? What is the Sharpe ratio for VZ? Show your calculation steps briefly and clearly. Find the minimum-variance portfolio (MVP), i.e., the weight of NFLX and VZ in the MVP. You do not need to show your calculation steps for this subquestion. Find the optimal risky portfolio P*, i.e., the weight of NFLX and VZ in P*. You do not need to show your calculation steps for this subquestion. Calculate the Sharpe ratio for the optimal risky portfolio P*. Verify that P* offers a higher Sharpe ratio than NFLX and VZ.Colin observed that the standard deviation of the return on the market index is estimated as 9.14%. If Target Corporation (TGT)’s standard deviation is 6.71% and its correlation of returns with the market index is 0.29, TGT’s beta is closest toConsider the following annual returns of Estee Lauder and Lowe’s Companies: EsteeLauder Lowe’s Companies Year 1 23.4 % −6.0 % Year 2 −26.0 16.1 Year 3 17.6 4.2 Year 4 49.9 48.0 Year 5 −16.8 −19.0 Compute each stock’s average return, standard deviation, and coefficient of variation. (Round your answers to 2 decimal places.) ESTEE LAUDER. LOWES COMPANY Average return. %. % Standard deviation % % Coefficient of variation
- a. Given the following holding-period returns, LOADING... , 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 % 6 % 2 2 1 3 2 0 4 −4 −1 5 4 3 6 3 4a. 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?(CAPM and expected returns) a. Given the following holding-period returns, LOADING... Month Zemin Corp. Market 1 8 % 5 % 2 5 4 3 0 2 4 −4 −1 5 6 4 6 3 3 , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.12 and the risk-free rate is 7 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? Question content area…
- A company has a beta of 1.4, the T-bill rate is 2.09%, and the expected return on the market is 9.02%. What is its required rate of return? Do not round your intermediate calculations. Express as a percent rounded to two decimal places.Consider the following annual returns of Molson Coors and International Paper: MolsonCoors International Paper Year 1 21.8 % 5.6 % Year 2 − 9.5 −18.6 Year 3 42.0 −0.4 Year 4 − 9.1 27.7 Year 5 17.3 −12.2 Compute each stock’s average return, standard deviation, and coefficient of variation.The following are the monthly rates of return for Madison Cookies and for Sophie Electric during a six-month period. Month Madison Cookies Sophie Electric 1 −0.04 0.072 0.06 −0.023 −0.07 −0.104 0.12 0.155 −0.02 −0.066 0.05 0.02 Compute the following. a. Average monthly rate of return Ri for each stockb. Standard deviation of returns for each stockc. Covariance between the rates of returnd. The correlation coefficient between the rates of returnWhat level of correlation did you expect? How did your expectations compare with the computed…
- The rate of return on General Electric common stock over the coming year is normally distributed with an expected value of 15 percent and a standard deviation of 12 percent. Determine the probability of earning a negative rate of return.The returns of Shanfari Company are as follows: Year 1=4, Year 2=11, Year3=21, Year 4= (-3). The Average Return and Standard Deviation of Shanfari Company are Select one: a. Average Return=6.75%, Standard Deviation=7.15 b. Average Return=8.25%, Standard Deviation=6.50 c. Average Return=8.25%, Standard Deviation=8.87 d. None of the options e. Average Return=7.45%, Standard Deviation=8.50A stock is estimated to have a covariance with the market of 0.45. For the coming period, the market expected return is 10%, the market variance is 0.60 and the market risk-premium is 5%. If the stock is currently trading at RM2.00, use to CAPM to calculate the future price of the stock at the end of the period.
