Suppose that the risk-free rate is 3.00% per annum. In addition, assume that the market portfolio has a required return of 12.40% per annum and a standard deviation of 14.40%. You are attempting to value the shares of Firm QQ. According to the Capital Asset Pricing Model (CAPM), what rate of return per annum should you require as compensation for investing in shares of Firm QQ if.. A) ...those shares have a beta of 0.00? (Round your answer to two decimal places) B) .those shares have a beta of (),33? % (Round your answer to two decimal places) C) .those shares have a beta of 1.00? (Round your answer to two decimal places) D) ..those shares have a beta of 1.71? % (Round your answer to two decimal places)

Suppose that the risk-free rate is 3.00% per annum. In addition, assume that the market portfolio has a required return of 12.40% per annum and a standard deviation of 14.40%. You are attempting to value the shares of Firm QQ. According to the Capital Asset Pricing Model (CAPM), what rate of return per annum should you require as compensation for investing in shares of Firm QQ if.. A) ...those shares have a beta of 0.00? (Round your answer to two decimal places) B) .those shares have a beta of (),33? % (Round your answer to two decimal places) C) .those shares have a beta of 1.00? (Round your answer to two decimal places) D) ..those shares have a beta of 1.71? % (Round your answer to two decimal places)

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 15P

See similar textbooks

Similar questions

Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firms stock?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.
You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns. Buy a stock for $30 a share, hold it for three years, and then sell it for $60 a share (the stock pays annual dividends of $2 a share). Buy a security for $40, hold it for two years, and then sell it for $100 (current income on this security is zero). Buy a one-year, 5 percent note for $1,000 (assume that the note has a $1,000 par value and that it will be held to maturity).
Market equity beta measures the covariability of a firms returns with all shares traded on the market (in excess of the risk-free interest rate). We refer to the degree of covariability as systematic risk. The market prices securities so that the expected returns should compensate the investor for the systematic risk of a particular stock. Stocks carrying a market equity beta of 1.20 should generate a higher return than stocks carrying a market equity beta of 0.90. Nonsystematic risk is any source of risk that does not affect the covariability of a firms returns with the market. Some writers refer to nonsystematic risk as firm-specific risk. Why is the characterization of nonsystematic risk as firm-specific risk a misnomer?
A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate, g, throughout time. The stock’s required rate of return is 14% (assume the market is in equilibrium with the required return equal to the expected return). What is your forecast of gL?