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- Required Rate of Return Suppose rRF = 3%, rM = 8%, and rA = 7%. Calculate Stock A's beta. Round your answer to one decimal place. If Stock A's beta were 1.1, then what would be A's new required rate of return? Round your answer to one decimal place. %The market and Stock J have the following probability distributions: Probability rM rJ 0.3 14 % 18 % 0.4 10 4 0.3 18 13 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %Question IV: Suppose S =$100, K =$95, r =8% (continuously compounded), t =1, o =30%, and 8=5%. Use an eight- period lognormal binomial tree to answer the following questions. You can also use Excel for this question. If you do so, please upload the Excel file separately with the detailed calculations. (a) Construct the stock tree. (b) Compute the prices of an European call option. (c) Compute the prices of an American put option.
- Suppose rRF = 4%, rM = 9%, and rA = 10%. Calculate Stock A's beta. Round your answer to one decimal place. If Stock A's beta were 1.6, then what would be A's new required rate of return? Round your answer to one decimal place. %You run a regression for the Tesla stock return on a market index to estimate the SML equation and find the following Excel output: Multiple R R-Square Adjusted R-Square Standard Error Observations Intercept Market = 0.28 0.25 0.02 40.01 60 13.35 and 0.97 0.8 and 0.1 0.28 and 0.25 0.26 and 1.36 0.2 and 0.75 Coefficients Standard Error t-Stat p-Value 0.2 0.75 The resulting SML equation for Laternios is given by: Er Laternios] 13.35 0.26 0.80 0.97 1.36 0.10 + __ × (E[rM] - rf)Expected Returns: Discrete Distribution The market and Stock J have the following probability distributions: Probability rM rJ 0.3 15% 20% 0.4 9 7 0.3 18 10 Calculate the expected rates of return for the market and Stock J. Round your answers to one decimal place. Expected rate of return (Market): % Expected rate of return (Stock J): % Calculate the standard deviations for the market and Stock J. Do not round intermediate calculations. Round your answers to two decimal places. Standard deviation (Market): % Standard deviation (Stock J): %
- Assume the risk-free rate is 2%. Calculate the stock's expected return, standard deviation, coefficient of variation, and Sharpe ratio. Do not round intermediate calculations. Round your answers to two decimal places.Astromet is financed entirely by common stock and has a beta of 1.20. The firm pays no taxes. The stock has a price-earnings multiple of 11.0 and is priced to offer a 10.9% expected return. The company decides to repurchase half the common stock and substitute an equal value of debt. Assume that the debt yields a risk-free 4.6%. Calculate the following: Required: a. The beta of the common stock after the refinancing b. The required return and risk premium on the common stock before the refinancing c. The required return and risk premium on the common stock after the refinancing d. The required return on the debt e. The required return on the company (i.e, stock and debt combined) after the refinancing If EBIT remains constant: f. What is the percentage increase in earnings per share after the refinancing? g-1. What is the new price-earnings multiple? g-2. Has anything happened to the stock price? Complete this question by entering your answers in the tabs below. Reg A to E Reg F to G2…Give typing answer with explanation and conclusion Assume that the risk-free rate is 2.5% and the market risk premium is 5%. What is the required rate of return on a stock with a beta of 1.9? Round your answer to one decimal place.
- Consider the discrete-time binomial tree model with three periods of length 1, i.e. T = 3 and t = 0, 1, 2, 3. In each period the price can move up or down, St+1 is either uSt or dSt. Assume that the factor for moving up is u = 4/3, the factor for moving down is d = 3/4, and that the interest rate is r = 0.0. The initial stock price is So = 1. (a) Compute the price process (i.e. prices at all times and states) for a European Put option on the stock with strike price K = 1 and maturity T = 3. (x - ž) (b) Compute the price at time t = 0 of the Australian option K with ST K = 1. Note: As this option is path dependent, you will not be able to use the recursive method, nor will you be able to use the CRR formula.What is portfolio A's CAPM beta based on your analysis? Round off your answer to three digits after the decimal points. State your answer as a percentage point as 1.234. Compute the Treynor measure for portfolio B. Round off your answer to three digits after the decimal point. State your answer as 1.234Expected Returns: Discrete Distribution The market and Stock ) have the following probability distributions: Probability 0.3 14% 19% 0.4 10 0.3 17 11 a. Calculate the expected rate of returm for the market. Round your answer to two decimal places. Calculate the expected rate of retum for Stock ), Round your answer to two decimal places. b. Calculate the standard deviation for the market. Do not round intermediate calculations. Round your answer to two decimal places. Calculate the standard deviation for Stock J. Do not round intermediate calculations Round your answer to two decimal places.