Problem:The stock of Pizza Hot, Inc., a Mexican pizza chain, has anestimated beta of 1.5. Calculate the required rate of returnPizza Hot's stock if the Security Market Line (SML) isonestimated as follows:0.06 +0.94Bjkja) based on initial inflation expectationof 4 percentb) A new inflation expectation of 6 percent. Problem:The real rate of interest has been estimated to be 3 percent,and the expected long-term annual inflation rate is7 percent.Questions:1. Whatisthecurrentrisk-freeofreturnon1-yearTreasury bond?2. If the investors in the common stock of American Airlinesrequire16 percentrateof return,whatistheaseniority risk premium on America's common stock?

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The stock of Pizza Hot, Inc., a Mexican pizza chain, has an estimated beta of 1.5. Calculate the required rate of return on Pizza Hot's stock if the Security Market Line (SML) is estimated as follows: kj = 0.06 +0.94Bj a) based on initial inflation expectation of 4 percent %3D b) A new inflation expectation of 6 percent.

The stock of Pizza Hot, Inc., a Mexican pizza chain, has an estimated beta of 1.5. Calculate the required rate of return on Pizza Hot's stock if the Security Market Line (SML) is estimated as follows: kj = 0.06 +0.94Bj a) based on initial inflation expectation of 4 percent %3D b) A new inflation expectation of 6 percent.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 8P

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