Answered: Remember the following the 1-factor…

Remember the following the 1-factor model or CAPM is defined as re-rf = beta * [rm -rf] what is the return on equity (re) if rf = 0.05 rm = 1.88 beta = 1.47

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 7P

See similar textbooks

Related questions

Q: Suppose a principal P is invested at the annual (nominal) rate r compounded m times a year for t…

A: Given: Annual nominal rate = r Time = t Principal = P

Q: (1) Consider a 15-year 7% semiannual pay bond, if the price of the bond per $1,000 of par value is…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Calculate the annual interest that you will receive on the described bond. A $1000 Treasury bond…

A: The Price of the Bond is calculated with the help of following formula Price of Bond = Face Value…

Q: Your company has a pre-tax cost of debt of 6%. You anticipate the corporate tax rate will go from…

A: A company pays interest on its debt instruments. This interest is tax deductible. Hence in finance…

Q: You have a chance to buy an annuity that pays $25,000 at the beginning of each year for 10 years.…

A: Here the payments are being made at the beginning of each year. Hence this is the case of an annuity…

Q: Both Bond Sam and Bond Dave have 12.8 percent coupons, make semiannual payments, and are priced at…

A: a. Percentage change in price if the interest rate rises by 3%: The table provides the calculation…

Q: Thornley Co. is considering a 3-year project with an initial cost of $636,000. The equipment is…

A: Given, The initial cost project is $636,000 Salvage value is $279,000 tax rate is 35%.

Q: Suppose you are the money manager of a $3.82 million investment fund. The fund consists of four…

A: Solution:- Capital Asset Pricing Model (CAPM) is a model which gives a formula to calculate the…

Q: esent value of an annuity of $1 ½/2% 0.9950 1.9851 2.9702 3.9505 4.9259 riod 1 2 3 4 5 6 7 8 9 10 11…

A: Present value of annuity is the equivalent amount based on the future cash flow and interest rate…

Q: Please show how IRR was being calculated. Excel is not helping because doesn't show how the IRR is…

A: IRR of a project is the discount rate which makes net present value of the project equals to zero.…

Q: What is the net present value (NPV) of the project?

A: NPV or net present value is an important tool in capital budgeting. It is the sum of present values…

Q: Assume that time is measured in years and that interest rates are constant. A cashflow of amount…

A: The present value at time 0 of the cashflows = Annual Cash Flow * PVA of $1 at 3% for 20 periods

Q: The web Corp has sales of $143489, cost of goods sold and other expenses (excluding depreciation) of…

A: Sales $ 1,43,489.00 Cost of goods sold and other expenses $ 55,491.00 Depreciation $…

Q: 1. Phil Nelson anticipates he will need approximately $227,000 in 11 years to cover his daughter's…

A: As per Bartleby guidelines, If multiple questions are posted, only the first 1 question will be…

Q: your view, what is the most important prediction of the Capital Asset Pricing Model? Among the…

A: 1) Capital asset pricing model is a model used to determine the required rate of return of an asset…

Q: Ch9) You are in need of a replacement water heater and are deciding betwee xpensive option (A) with…

A: When the equipments have different life spans than each equipment can be compared with other on the…

Q: Refer to the bond listing table below to determine the current bond yield for BAC.IOP. Bond Listing…

A: We have to find the current yield of a specified bond.

Q: What's the future value of $10,000 after 10 years if the appropriate interest rate is 10%,…

A: Initial value (PV) = $10,000 Monthly interest rate (r) = 0.00833333333333333 (i.e. 0.10 / 12)…

Q: An item that had a list price of $1446 was subject to trade What is the single discounts of 13%, 11%…

A: Single equivalent discount rate is one rate which is given on the item puchased. It will result in…

Q: A Php370,000 loan is to be amortized at 10% compounded semi-annually for 3 years. The semi-annual…

A: Interest payment for a given period is the previous period outstanding balance times periodic…

Q: Shelley borrowed $1021.00 from the Central Bank at 8.9% per annum calculated on the monthly unpaid…

A: Data given: Loan amount= $1021 Rate=8.9% p.a. Monthly payment=$218 Working Note #1 Calculation of…

Q: What is the days sales outstanding? Do not round intermediate calculations. Round your answer to the…

A: Information Provided: Terms = 2/10, net 35 Total sales = $1,400,000 % of customers paying on the…

Q: What is one of the drawbacks of the parol evidence rule? It permits the acceptance of extrinsic…

A: First let us discuss what parol evidence rule is. The term parol means extra. This rule comes under…

Q: If the 30-year fixed mortgage rate is 5%, how expensive of a house can someone making $62535 a year…

A: A mortgage is a loan taken out for the purchase or maintenance of the real estate. It is a covered…

Q: Your company currently has $1,000 par, 5.75% coupon bonds with 10 years to maturity and a price of…

A: Given, Par value of bond is $1,000 Coupon rate is 5.75% price of bond is $1,078

Q: What is the Yield to Maturity?

A: Information Provided: Bond price = $1050 Bond par value = $1000 Coupon rate = 8% Maturity = 10…

Q: Explain in detail the E-I-C analysis approach

A: EIC Analysis Approach: EIC Analysis is called the Economic Industry Company Analysis and is a type…

Q: b) The risk-free rate in Australia in Jun 2022 was 3.37%. Based on the following information for…

A: To Find: Coefficient of Variation Sharpe ratio jensen Index

Q: If the net present value (NPV) of a project is negative: Group of answer choices accepting the…

A: 1) Statement 1 & 2NPV is the difference between present value of incashflows and present value…

Q: Cranny’s Inc. has EBIT of $3932.8 depreciation of $717.3, a tax rate of 0.35, a capital expenditure…

A: Free Cash Flows refers to the amount of cash that could be Used/withdrawn without harming a firm's…

Q: Citadel LLC is one of largest hedge fund firms in the United States. Citadel now holds $360 billion…

A: Here, Hedge fund balance = $360 billion Management fees = 2% Incentive fees = 20% Appreciation in…

Q: Howard, LLC has an equity beta of 1.3. The company just paid an annual dividend of $0.30, and the…

A: Just paid dividend (D0) = $0.30 Stock price (P0) = $80 Growth rate (g) = 0.04 Cost of equity = ?

Q: t what interest rate will the 13,250 amounted to 17,500 for the period of march 2, 2000 to april 2,…

A: Furture Value = Present Value * ( 1 + r)n where r = periodic interest rate Future Value = 17,500…

Q: inking Fund Payment Payment Frequency Time Period (years) Nominal Rate (%) Interest Compounded…

A: Sinking fund payment refer to the amount that is kept aside or saved for paying the value of debt…

Q: You are interested in purchasing a from the car dealer .the advertised price is $25000. the dealer…

A: Monthly Payment = P * r * [(1 +r)n /({1 + r}n -1)] Where P = Principal borrowed = car price -…

Q: Business Z has 25 million shares outstanding at $13 Wishes to Raise $5 Mill for Investment…

A: Theoretical Ex Right Price: The projected value of a company's share following a rights issue is…

Q: ume the CPI increases from 133.8 to 136.6 over the period. What is the inflation rate implied by…

A: CPI is the consumer price index which shows the prices of goods during year and is used for…

Q: Find the future value of an ordinary annuity of $8,000 semiannually for eight years at 7% annual…

A: Given The periodic annuity payment is $8000 Term is 8 years Annual rate is 7% compounded semi…

Q: Suppose Jack, president of Heart Limited has hired you to advise on the firm’s cost of capital.…

A: Data given: Total liabilities=$ 8 million Total interest expense for the coming year will be about…

Q: how would SCF indicate to an investor that the company is experiencing a “cash-crunch” 2. Explain 3…

A: Cash and liquidity are very important in the business in short term survival and long term survival…

Q: WHat is the NPVof this investment?

A: Given: Debt ratio 40% Required return 11% Cost of debt 6% Initial investment $48,000 Tax…

Q: For the intrinsic value, why is the cashflow divided by (10%-6%

A: Intrinsic value of a stock or any other financial security is the fundamental value of that stock or…

Q: A company issued bonds with a par value of $250,000 and a maturity of 25 y Bonds pay interest every…

A: Price of bond is the present value of par value of bond and present value of the coupon payment…

Q: Nadine Chelesvig has patented her invention. She is offering a potential manufacturer two contracts…

Q: On June 25th 2020, Investor John Brooks subscribed $1,000 in Capital Investment at $10 per unit. He…

A: Here, To Find: Unit Balance on Aug 31, 2020 =?

Q: Which type of trader is said to be paid to take on risk? O Speculator O Hedger O Arbitrageur 12

A: Speculator- An individual or an institutions who uses strategies to gain high profits in a short…

Q: 9 Dexter purchased a 10-year $10,000 bond with semiannual coupons at a nominal rate of 7%…

A: Generally, the value of a callable bond is calculated as shown below. Value of a callable…

Q: Darlene wishes to purchase 200 shares of The-Smart-One Inc. in 4 years from now. The-Smart-One paid…

A: Given , The dividend paid last year is $2.25 Growth rate is 2% for first 2 years Required rate is 6%

Q: Alex is considering one of two options for reducing her heating bill during the winter: New windows…

A: Two options have been given. Using PW or AW or FW, we have to find the better option. Secondly, we…

Q: Define the following terms Cost analyses negotiation Quality negotiation Price negotiation

A: Cost analysis negotiation, sometimes known as 'cost negotiation,' is becoming more popular. The…

Question

Remember the following the 1-factor model or CAPM is defined as re-rf
beta * [rm -rf]
what is the return on equity (re) if
rf = 0.05
rm = 1.88
beta = 1.47

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

Information;

VIEW

Calculation of return on equity;

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

The single sum, present worth factor: a. Can be depicted as (1 + i)−n b. Can be depicted as (P|F i%,n) c. Is represented as PV using the Excel® financial function with −1 inserted for the fv parameter d. All of the above.
a. Compute the expected rate of return on investment i given the following information: the market risk premium is 5%; Rf = 6%; βi = 1.2. b. Compute E(RM).
Consider the following regression Pt * - Pt = .07(1.4) + .4*Pt (3.6) + et where Pt * is Shiller’s ex post price of a stock, Pt is the actual price and t-ratios are in brackets. Explain in words and analytically what the dependent variable Pt * - Pt should be equal to under the efficient markets theory. Hence interpret the regression. Does it support the efficient markets theory?
Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 4%, market return of 8% and Beta of 1.75 a. 13.00% b. 12.00% c. 11.00% d. 10.00%
As per Capital Asset Pricing Model (CAPM) : Re=Rf+(Rm-Rf)βwhere, Re= Required rate of returnRf= Risk free rate of return = 0%Rm = Market return or Expected return on market = 3.3%β = Beta of the stock = 1.24Now, Re= Rf + Rm - Rf βRe= 0 + 3.3 - 0 ×1.24Re= 4.092% To calculate the abnormal return we will use the formula: = E(R) - Re= 3% - 4.092% = -1.092% or - 0.01092 How did you get the 4.092%?
Vostan Industries wants to know its cost of equity. The risk-free rate is 5%,the expected return of the market(Erm) is 7%, and Vostan’s equity beta is 1.5. What is Vostan’s cost of equity (Ke) using CAPM approach?
Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4, its EPS1 is $2.00, and investor required return is 10%.. What is the percent of capital gains?DONOT SOLVE ON EXCEL USE PROPER FORMATE
The current appropriate risk-free rate is 6% and the return on the market is 13.5%.Further assume that you calculated the levered beta above as 1.29. Using the CAPM, estimate DUC’s cost of equity. Be sure to state any additional assumptions.
XYZ has a beta coefficient of 1.76. Estimate its cost of equity if the risk-free rate is 8% and return on the broad market index is 16%. Calculate the cost of equity.
The slope of the Security Market Line equals to ____, and the slope of Capital Allocation Line equals to____. Select one: A. Beta; Sharpe Ratio B. Market Risk Premium; Sharpe Ratio C. Risk free rate; Volatility D. Market Risk Premium; Volatility
Consider the following scenario and complete the last column and then Assess the sensitivity of the price-earnings ratio to changes in the cost of equity capital and changes in the growth rate: Table 9 Estimating price earning(P/E) ratios under various scenarios Scenario Cost of Equity Capital Growth Rate in Earnings P/E Ratio 1 0.13 0.09 2 0.13 0.11 3 0.15 0.09 4 0.18 0.09 5 0.18 0.11
Suppose you are given the following inputs for the Fama-Frech-3-Factor model. Required Return for Stock i: bi=0.8, kRF=8%, the market risk premium is 6%, ci=-0.6, the expected value for the size factor is 5%, di=-0.4, and the expected value for the book-to-market factor is 4%. Task: Estimate the required rate of return of this asset using the Capital asset pricing model and compare it with the Fama-French-3-factor model.