Answered: Suppose that the Treasury bill rate is…

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

8th Edition

ISBN:9781285065137

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 4DQ: Select one of the four stocks listed in Question 3 by entering the companys ticker symbol on the...

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Question

Suppose that the Treasury bill rate is 9% rather than 6%, as we assumed in Table 12.1, and the expected return on the market is 11%. Use the betas in that table to answer the following questions.

a. Recalculate the expected return on the stocks in Table 12.1. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

b. Suppose now that you continued to assume that the expected return on the market remained at 11%. Now, what would be the expected returns on each stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

TABLE 12.1 Betas for
Ticker
Company
Beta
selected common stocks,
January 2013-December 2017
U.S. Steel
3.01
MRO
Marathon Oil
2.39
AMZN
Amazon
1.47
DIS
Disney
1.39
F
Ford
1.26
BA
Boeing
1.24
INTC
Intel
1.07
GE
GE
1.06
PFE
Pfizer
1.02
IBM
IBM
0.94
GOOG
Alphabet
0.94
UNP
Union Pacific
0.90
хом
ExxonMobil
0.82
SBUX
Starbucks
0.75
ко
Coca-Cola
0.70
MCD
McDonald's
0.68
СРВ
Campbell Soup
0.40
WMT
Walmart
0.37
PCG
Pacific Gas & Electric
0.15
NEM
Newmont Mining
0.10

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