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- 1. Your investment has a 20% chance of earning a 10% rate of return, a 70% chance of earning a 30% rate of return, and a 10% chance of losing 15%. What is the standard deviation on this investment? 2. If you are promised a nominal return of 12.5% on a 1-year investment, and you expect the rate of inflation to be 8.5%, what real rate do you expect to earn? 3. Treasury bills are paying a 2.5% rate of return. A risk-averse investor with a risk aversion of A = 1.9 should invest entirely in a risky portfolio with a standard deviation of 5% only if the risky portfolio's expected return is at least NOTE: All answers should be express in strictly numerical terms. For example, if the answer is 5%, write 0.05#39 Kara Zor-El has been advised that the Build Up Method is the most appropriate for determining a required rate of return for Steel, Inc. Currently, the Treasury band rate is 2.50%, the equity risk premium is 6.75%, the correlation risk premium is 5.75%, the micro-cap risk premium is 4.50%, the earnings risk premium is 3.25%, the start-up risk premium is 5.50%, and the seasonal risk premium is 3.75%. Using the Build-Up Method for determining the cost of capital, what is the required rate of return for Steel, Inc.? O A 13.75% O B. 17.00% O C. 18.25% O D. 19.25% O E. 20.50%HR Industries (HRI) has a beta of 1.6; LR Industries’s(LRI) beta is 0.8. The risk-free rate is 6%, and the required rate of return on an averagestock is 13%. The expected rate of inflation built into rRF falls by 1.5 percentage points, thereal risk-free rate remains constant, the required return on the market falls to 10.5%, and allbetas remain constant. After all of these changes, what will be the difference in the requiredreturns for HRI and LRI?
- Investors expect a 2.0% rate of inflation in the future. The real risk-free rate is 1.0%, and the market risk premium is 6.0%. Isbell Enterprises has a beta of 1.1. Calculate the required rate of return for Isbell Enterprises. (Answer as a percent with 2 decimal places. For example, 10 percent should be entered as 10.00. Do not use the % sign.)Paycheck, Inc. has a beta of 1.19. If the market return is expected to be 13.50 percent and the risk-free rate is 6.70 percent, what is Paycheck’s risk premium? (Round your answer to 2 decimal places.)Okik Inc. has a beta coefficient of 1.0 and a required rate of return of 12 percent. The market risk premium is currently 8 percent. If the risk free rate increases by 2 percentage points, and Okik Inc. acquires new assets which increase its beta by 50 percent, what will be Okik’s new required rate of return? Give your answer in whole number, disregard the % sign e.g. 25% should be written as 25.
- Treasury bill yield is 10%, ABC company’s expected return for the next year is 18%, beta of ABC company is 2. If everything is in equilibrium as required by CAPM, what is the market’s expected return for the next year? a. 14% b. 8.5% c. 11% d. 21%Kollo Enterprises has a beta of 0.70, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return? Do not round your intermediate calculations.Suppose 1-year T-bills currently yield 7.40% and the future inflation rate is expected to be constant at 3.00% per year. What is the real risk-free rate of return, r*? Disregard any cross-product terms, i.e., if averaging is required, use the arithmetic average. a. 4.40% b. 7.40% c. 10.40% d. 7.62% e. 5.20%
- 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?Dhofar Energy Services has a Beta = 1.18 The risk-free rate on a treasury bill is currently 4.4% and the cost of equity has 20.70%. What is the market return? Select one: a. 0.2149 b. 0.1821 c. 0.2169 d. 1.1381 e. All the given choices are not correctTreasury bill yield is 10%, ABC company’s expected return for the next year is 18%, beta of ABC company is 2. If everything is in equilibrium as required by CAPM, what is the market’s expected return for the next year? 14% 8.5% 11% 21%