Your estimate of the market risk premium is 7%. The risk-free rate of return is 3.5% and General Motors has a beta of 1.3. According to the Capital Asset Pricing Model (CAPM), what is its expected return? A. 12.6% B. 13.2% C. 12% D. 11.3%

Your estimate of the market risk premium is 7%. The risk-free rate of return is 3.5% and General Motors has a beta of 1.3. According to the Capital Asset Pricing Model (CAPM), what is its expected return? A. 12.6% B. 13.2% C. 12% D. 11.3%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 7P

See similar textbooks

Related questions

Q: The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the…

A: Risk free rate = 4% Market return = 12% Beta of stock X = 1.5

Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm- R;) is 89%. If…

A: Financial management consists of directing, planning, organizing and controlling of financial…

Q: Your estimate of the market risk premium is 5%. The risk-free rate of return is 4%, and JB Hi Fi has…

A: Market Risk Premium = 5% Risk Free Rate = 4% Beta = 1.5

Q: need help with all

A: Risk free rate, Rf = 4%CAPM = E(R) = Rf + Beta x (Rm - Rf) where Rm is the expected return from…

Q: Given the following holding-period returns, LOADING... , compute the average returns and the…

A: Given: Risk free rate 6% Beta 1.87 Month Zemin Corp Market 1 5% 6% 2 2% 1% 3 2% 0%…

Q: The rate of return on U.S. T-bills is 3.25% and the expected return on the market is 9.50%. J&X,…

A: Systematic risk is the risk of the market volatility, Systematic risk affects entire market not…

Q: Asset P has a beta of 0.9. The risk-free rate of return is 8 percent, while the return on the market…

A: The asset required rate of return can be calculated with the help of CAPM equation

Q: You estimate of the market risk premium is 7%. The risk-free rate of return is 3.1 % and General…

A: In the given question we are require to calculate the expected return of General Motors from the…

Q: Consider an economy where Capital Asset Pricing Model holds. In this economy, stocks A and B have…

A: In this we have to use capital assets pricing formula.

Q: Monroe Mclntyre has estimated the expected return for Bruehl Industries to be 9.45%. He notes the…

A: The Capital Asset Pricing Model (CAPM) refers to the model which tells us how the financial markets…

Q: Asset W has an expected return of 21.3 percent and a beta of 2.05. If the risk-free rate is 3.5…

A: Following details are given to us in the question regarding Asset W : Expected Return (ER) = 21.3…

Q: What is required return using the capital asset pricing model if a stock's beta is 1.2 and the…

A: Required Return = Risk free Rate + Beta * (market return - risk free rate)

Q: Greg Noronha has been told the expected return on Merchants Bank is 8.80%, He knows the risk-free…

A: Fairly Valued - If a security's market price equals its true value, it is said to be fairly valued.…

Q: If the risk free rate is 6 %, the expected return on the market portfolio is 12% and the beta of…

A: The Capital Asset Pricing Model (CAPM) is the model which shows the relationship between the…

Q: Suppose your company has an equity beta of 0,9 and the current risk-free rate is 7,1%. if the…

A: We require to calculate cost of equity capital in this question.

Q: a. A company wants to estimate its required rate of return using the Capital Asset Pricing Model…

A: The minimum return that an investor will accept on investment is called the required rate of return.…

Q: calculate the cost of equity for the Collins Company using the capital asset pricing model.

A: Given information is: Assume that the Collins Company has a beta of 1.8 and that the risk-free rate…

Q: The Treasury bill rate is 3.1%, and the expected return on the market portfolio is 10.2%. Use the…

A: According to CAPM model: rate of return =risk free rate+beta ×market return - risk free rate

Q: CAPM: The Treasury bill rate is 5%, and the expected return on the market portfolio is 12%. On the…

A: Risk premium = Expected return on market portfolio - Treasury bill rate Risk premium on investment =…

Q: Suppose the current risk -free rate of return is 5 percent and the expected market risk premium is 7…

A: As per CAPM, cost of retained earnings = risk free rate + beta * market risk premium

Q: If the expected return on State Farm from the Capital Asset Pricing Model (the CAPM) is 0.20, and if…

A: Expected Return on State Farm = 0.20 Risk Free Rate = 0.05 Expected Return on market portfolio =…

Q: The current risk-free rate of return (rRf) is 4.67% while the market risk premium is 5.75%. The…

A: According to the CAPM model the cost of equity is the sum of the risk free rate plus the product of…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - Rf) is 8%. If…

A: Financial statements are statements which states the business activities performed by the company .…

Q: Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a…

A: Data given: Two types of assets: i) S&P 500 with expected return = 13% with a beta of 1.0 ii)…

Q: e Treasury bill rate is 6%, and the expected return on the market portfolio is 14%. According to the…

A: We need to use CAPM to calculate required rate of return. The equation Required rate of return =Risk…

Q: Suppose the risk-free rate is 6 percent and the market portfolio has an expected return of 12…

A: The question can be answered by determining the expected return for the stock using the capital…

Q: need help

A: A.Calculate the alpha of portfolios as follows:Portfolio A:

Q: If the firm’s beta is 1.75, the risk-free rate is 8%, and the average return on the market is 12%,…

A: Firm beta (B) = 1.75 Risk free rate (Rf) = 8% Market return (Rm) = 12%

Q: The current risk-free rate of return is 4.67%, while the market risk premium is 6.63%. The D'Amico…

A: In the given question we need to compute the D'Amico's cost of equity using Capital asset pricing…

Q: Salalah Oil,has a cost of equity capital equal to 22.8 percent. If the risk-free rate of return is…

A: As per CAPM,

Q: AnthroPort has a beta of 1.1 and its RWACC is 13.6 percent. The market risk premium is 7.2 percent…

A: The value of the firm at year 4 is calculated with the help of WACC and growth rate

Q: The Treasury bill rate is 3%, and the expected return on the market portfolio is 14%. According to…

A: Part (a): Calculation of risk premium on the market: Answer: Risk premium is 11%

Q: A researcher has determined that a two-factor model is appropriate to determine the return on a…

A: Risk free rate (Rf) = 11% GNP market return (R1) = 13.5% GNP beta (B1) = 1.2 Interest rate return…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - R) is 8%. If…

A: Given: Risk free rate of return =4%Market risk premium =8%Beta =1.28

Q: Deming Corporation utilizes the capital asset pricing model (CAPM) to estimate the cost of its…

A: Market Rate of Return = 10% Beta = 1 Risk Free Rate = 5%

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 12%. According che…

A: Given information : Treasury bill rate = 6% Expected return on market portfolio = 12% And, CAPM…

Q: Consider an economy where Capital Asset Pricing Model holds. In this economy, stocks A and B have…

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

Q: the capital asset pricing model.

A: The Capital Asset Pricing Model (CAPM) is a very popular model used in finance to describe the…

Q: Security X has an expected rate of return of 13% and a beta of 1.15. The risk-free rate is 5%, and…

A: In the given we need to analyze whether the security X is Under-valued or over-valued. For this we…

Q: Your estimate of the market risk premium is 6%. The risk-free rate of return is 1% and General…

A: The Capital Asset Pricing Model (CAPM) is a model that gives the connection between the normal…

Q: Assume that the Capital Asset Pricing Model holds. The market portfolio has an expected return of…

A: IF Capital Asset Pricing Model (CAPM) hold good, Expected Return on Stock = Risk-Free rate + (…

Q: The return on market portfolio is 12% and the risk-free is 6%. The beta coefficient is 1.3.Using the…

A: Market return (MR) = 12% Risk free rate (RF) = 6% Beta (B) = 1.3

Q: 11f

A: Calculate the expected return as follows: Expected return = Risk free rate + (Beta * Market risk…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (ie, Rm - Rp) is 8%. If…

A: Financial statements are statements which states the business activities performed by the company .…

Q: 1. Stock A has a required expected return of 6 percent and stock B has a required expected return of…

A: Required return of A (Ra) = 6% Required return of B (Rb) = 10% Beta of A = B Beta of B = twice that…

Q: Treasury bills currently have a return of 3.5% and the market risk premium is 8%. If a firm has a…

A: Given information T bill rate = 3.5% (risk free rate) Market risk premium= 8% Beta…

Q: The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. According to…

A: Dear Student as per Bartleby's answering guideline we can not answer more than three sub-parts. to…

Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

10f

Your estimate of the market risk premium is 7%. The risk-free rate of return is 3.5% and General Motors has a beta of 1.3. According to the Capital Asset Pricing
Model (CAPM), what is its expected return?
A. 12.6%
B. 13.2%
C. 12%
D. 11.3%

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

Step 1

VIEW

Step 2

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

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?
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?
Your estimate of the market risk premium is 8%. The risk−free rate of return is 3.1% and General Motors has a beta of 1.5. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.4? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.8 offers an expected return of 9.0%, does it have a positive or negative NPV? d. If the market expects a return of 11.0% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model: A. What is the risk premium on the market? B. What is the required return on an investment with a beta of 1.4? C. If an investment with a beta of 0.8 offers an expected return of 9.0% does it have positive or negative NPV? D. If the market expects a return of 11.0% from stock X, what is its beta?
The Treasury bill rate is 6%, and the expected return on the market portfolio is 14%. According to the capital asset pricing model: a. What is the risk premium on the market?b. What is the required return on an investment with a beta of 1.4? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)c. If an investment with a beta of 0.6 offers an expected return of 8.4%, does it have a positive or negative NPV?d. If the market expects a return of 11.6% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
The Treasury bill rate is 4.9%, and the expected return on the market portfolio is 11.1%. Use the capital asset pricing model. What is the risk premium on the market? (Enter your answer as a percent rounded to 1 decimal place.) What is the required return on an investment with a beta of 1.2? (Enter your answer as a percent rounded to 2 decimal places.) If an investment with a beta of 0.46 offers an expected return of 8.7%, does it have a positive NPV? If the market expects a return of 12.2% from stock X, what is its beta? (Round your answer to 2 decimal places.)
The risk-free rate is 1.45% and the market risk premium is 5.21%According to the Capital Asset Pricing Model (CAPM ), a stock with a beta of 1.13 will have an expected return of %.
Your estimate of the market risk premium is 6%. The risk-free rate of return is 1% and General Motors has a beta of 1.79. What is General Motors' cost of equity capital?
Given an expected market risk premium of 12.0%, a beta of 0.75 for Benson Industries, and a risk-free rate of 4.0%, what is the expected return for Benson Industries?
Consider an economy where Capital Asset Pricing Model holds. In this economy, stocks A and B have the following characteristics: Stock A has and expected return of 22% and a beta of 2. Stock B has an expected return of 15% and a beta of 0.8. The standard deviation of the market portfolio’s return is 18%. Q: Assuming that stocks A and B are correctly priced according to the CAPM, compute the risk-free rate and the market risk premium.
Hastings Entertainment has a beta of 0.65. If the market return is expected to be 11% and the risk-free rate is 4%, what is Hastings' required return? Use the capital asset pricing model.