In early 2008, we estimated a beta of 1.162 for Deutsche Bank, which used in conjunction with the Euro risk-free rate of 4% (in January 2008) and an equity risk premium of 4.50%, yielded a cost of equity of 9.23%. In November 2013, the Euro risk-free rate had dropped to 1.75% and the Deutsche’s equity risk premium had risen to 6.12%. Required: What is the Cost of Equity for

In early 2008, we estimated a beta of 1.162 for Deutsche Bank, which used in conjunction with the Euro risk-free rate of 4% (in January 2008) and an equity risk premium of 4.50%, yielded a cost of equity of 9.23%. In November 2013, the Euro risk-free rate had dropped to 1.75% and the Deutsche’s equity risk premium had risen to 6.12%. Required: What is the Cost of Equity for

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 7P

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Similar questions

Consider the estimated beta values as of June 30, 2011, for the followingcompanies: Coca Cola 0.60 Microsoft 0.80 General Electric 1.20 Alcoa Inc. 1.45If the risk-free rate is 4.35% and the average market return is 11.5%, estimateeach company's cost of equity capital.
Historical nominal returns for a company have been 16% and -40%. The nominal returns for the market index S&P500 over the same periods were -30% and 28%. Calculate the beta for the company. Assume that using the Security Market Line the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on the market portfolio is denoted by RM. Find the ratio of beta of A (bA) to beta of B (bB). Assume that the short-term risk-free rate is 6%, the market index S&P500 is expected to pay returns of 30% with the standard deviation equal to 40%. Asset A pays on average 10%, has a standard deviation equal to 40% and is NOT correlated with the S&P500. Asset B pays on average 16%, also has a standard deviation equal to 40% and has a correlation of 1 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why.
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.
Porter Plumbing’s stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)
Currently, the nominal risk-free rate is 1.64 percent, the market risk premium is 8 percent, and the beta for Starbucks stock is 0.52. Inflation is expected to decrease by 0.3 percentage points and investors' risk aversion is expected to increase by 3.2 percentage points. If these changes happen, what would investors require as a return on Starbucks' stock?
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.
Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4%,and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%,and the return on an average stock in the market last year was 15%. Whatis the estimated cost of common equity using the CAPM?
May I have the step by step calculations for the following: Linke Motors has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual return on the stock market during the past 3 years was 15.00%, but investors expect the annual future stock market return to be 13.00%. Based on the SML, what is the firm's required return?
Historical nominal returns for Coca-Cola have been 8% and -20%. The nominal returns for the market index S&P500 over the same periods were -15% and 28%. Calculate the beta for Coca-cola. Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B)
Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company common stock has a beta of 1.80. The expected return on the market is 10 percent, and the risk-free rate is 6 percent. According to the capital-asset pricing model (CAPM) and making use of the information above, the required return on Plaid Pants' common stock should be _____ , and the required return on Acme's common stock should be____ .
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a. 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?