- Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills = 6% dividend = 10 per 100 value State of market Probability Ending price Boom 0.3 140 Normal growth 0.4 110 Recession 0.3 80 Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment, and standard deviation of excess return.

Q: Suppose the common stock of United Industries has a beta of 1.09 and an expected return of 13.9…

A: Introduction: When it comes to the stock market, investors need to understand every term and phrase.…

Q: Calculate the required rate of return for Mercury, Inc.

A: Required Rate of Return: It is the minimum acceptable rate of return for the investors for…

Q: What is the expected rate of return and standard deviation on this stock?

A: The expected rate of return is a statistical degree used for studying the portfolio. It is the…

Q: Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.9%…

A: Required Rate is the least return that is anticipated by an investor on any security. It is…

Q: Zincon Industries has a beta of 1.45. The risk-free rate is 8 percent and the expected return on the…

A: The required rate of return can be ascertained by using the Capital Asset Pricing Model (CAPM). The…

Q: next expected dividend for Stock P is 10 and the current price of the stock is P40. The risk free…

A: Expected rate of return and required rate of return are return on an investment for evaluating an…

Q: The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate…

A:

Q: Blue Bell stock is expected to return 8.4 percent in a boom, 8.9 percent in a normal economy, and…

A: Standard deviation refers to the variation or dispersion in the values of a data set. Standard…

Q: You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also…

A: Using CAPM

Q: Expected dividend yield 5%

A: Ans.   D.stock X pays higher dividend per share than stock y

Q: You are considering an investment in Eagle Corporation's stock, which is expected to pay a dividend…

A: GIVEN, Rf=3.3% beta = 0.9 Rm= 5% therefore,  from CAPM model,…

Q: The current risk-free rate of return is 2.5 percent and the market risk premium is 5 percent. If the…

A: The return which the investors are expected in order to invest in specific securities is referred to…

Q: Assume the real return in the economy is 4 percent. It is anticipated that the consumer price index…

A: Real Return = 4% Consumer Price Index Start = 200 Consumer Price Index End = 210 Expected Inflation…

Q: Suppose the current risk-free rate of return is 3.5 percent and the expected market return is 9…

A: In the given question we are required to compute the firm's cost of retained earnings using CAPM…

Q: Currently, the nominal risk-free rate is 1.64 percent, the market risk premium is 8 percent, and the…

A: Capital Asset Pricing Model explains return of a stock using  risk free rate and market risk premium…

Q: Calculate the required rate of return for Mudd Enterprises assuming that investors expect a 3.4%…

A: Nominal risk-free rate: It refers to that return that is free from inflation adjustment. It is…

Q: What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk - free…

A: Beta shows the systematic risk of the asset. The beta of the asset increases the expected rate of…

Q: You are thinking of buying a stock priced at $98 per share. Assume that the risk-free rate is about…

A: Holding period return = Dividend paid + ( Price at year 1 - Price at year 0 ) / Price at year 0

Q: The stock of Martin Industries has a beta of 1.43. The risk-free rate of return is 2.6 percent and…

A: A model that represents the relationship of the required return and beta of a particular asset is…

Q: JJM has a beta coefficient of 1.2. currently the risk free rate is 2 percent and the anticipated…

A: A. what is the required return for JJM?Required return, Ke = Risk free rate + Beta x (Anticipated…

Q: The next expected dividend for Stock P is 10 and the current price of the stock is P40. The risk…

A: Expected Return: The expected return is the minimum required rate of return which an investor…

Q: The expected market return is E(RM)is estimated to be 12% per annum, while the risk-free return (rf)…

A: This question can be answered with the help of Capital Asset Pricing Model(CAPM). Ke=Rf+β(K m -Rf)…

Q: Calculate the required rate of return for Climax Inc., assuming that (1) investors expect a 4.0%…

A: Calculate the required rate of return as follows:

Q: What is the expected return on Verdoni’s stock?

A: The expected return is the return expected by the investors on their investment. It is the…

Q: The common stock of Peeta Inc. has an expected return of 15.0%, the risk-free rate is 3.20%, and the…

A: The return which a company decides as a cost if an investment meets its capital requirement is…

Q: The stock of Big Joe's has a beta of 1.50 and an expected return of 12.60 percent. The risk-free…

A: Given: Beta = 1.50 Expected return = 12.60% Risk free rate = 5.1%

Q: Consider the following scenario analysis:   Scenario                   Probability…

A: Expected return refers to the investor’s predicted amount of profit and loss on an investment.…

Q: Consider the following scenario analysis:       Rate of Return Scenario Probability Stocks Bonds…

A: Expected Return is average return that investor can earn considering different probabilities and…

Q: You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also…

A: If Capital Asset Pricing Model hold good Required Return = Risk Free rate + (market Return - Risk…

Q: Suppose the current risk-free rate of return is 3.5 percent and the expected market return is 9…

A: Introduction: Retained earnings are the revenues or profits that an organization has produced to…

Q: Northern Wear stock has an expected return of 14.6 percent. Given the information below, what is the…

A: Probability of Recession (Pr) = 0.15 Probability of Normal (Pn) = 0.80 Probability of Boom (Pb) =…

Q: Stocks X and Y have the following data. Assuming the stock market is efficient and the stocks are in…

A: Answer : The correct answer is b. One year from now, Stock X's price is expected to be higher than…

Q: Assume the risk-free rate is 3% and the market return is 10%. Stock X Stock Y Stock Z Beta 0.65 0.90…

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

Q: If you buy stock for a price of 23 dollars and if you expect to get a return of 1242 one year from…

A: P0 = Return / (ke-g) Where, ke = Required rate of return g =growth rate  P0 =stock price

Q: The common stock of Peeta Inc. has an expected return of 15.0%, the risk-free rate is 3.20%, and the…

A: Calculate the beta as follows:

Q: Using CAPM A stock has an expected return of 10 percent, its beta is .70, and the risk-free rate is…

A: This question require us to compute the expected return on the market i.e. Rm

Q: Consider three stocks: Q, R and S   Beta STD (annual) Forecast for Nov 2009       Dividend Stock…

A:

Q: The risk-free rate is 4 per cent. The expected market rate of return is 12 per cent. If you actually…

A: Solution-Risk free rate Rf=4%Expected market rate of return Rm=12%Beta=1.0

Q: The risk-free rate is 4.6 % and you believe that the S&P 500's excess return will be 11.2 % over…

A: Given: Expected excess return over next year = 11.2% Beta of stock = 1.4

Q: B24&Co stock has a beta of 1.60, the current risk-free rate is 3.10 percent, and the expected return…

A: In the given question we require to calculate the cost of equity for B24&co

Q: If risk free rate is 7% and the market return is 15%. Compute the expected and required return on…

A: We need to use CAPM to calculate required rate of return. Expected return =Risk free rate+…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.