You're considering purchasing Proctor and Gamble Stock. Suppose the risk-free interest rate is 5.0% and the stock market's expected return is 13.50%. Also, suppose that if the stock market's value rises by 1%, stock in Proctor and Gamble typically rises by 1%. a. What is the percentage of Proctor and Gamble's risk premium? c. What is the correct discount rate to use according to the Capital Asset Pricing Model (CAPM) when analyzing the present value of future cash flows from this stock

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: Suppose the rate of return on short-term government securities (perceived to be risk-free) is about…

A: a) Given: Expected rate of return on portfolio E(RP) = 12% Portfolio beta = 1 Risk free rate =5%…

Q: Suppose you bought the portfolio in (1), and suppose further that Firm A's share price increased to…

A: Firm A's new share price increase = PHP 36 Firm B's new share price falls = PHP 38   Number of…

Q: You are considering purchasing Kimberly-Clark stock. Suppose the risk-free interest rate is 4.5…

A: The Cost of Equity or required rate of return will be Calculated by using Capital Pricing Model…

Q: Assume that the risk-free rate of return is 46 and the market risk premium (Le, Rm-Re) is 8%. If use…

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

Q: Based on Capital Asset Pricing Model (CAPM), calculate the return on market portfolio if the Nestle…

A: The required rate of return can be ascertained by using the Capital Asset Pricing Model (CAPM). 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: You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend…

A: Required rate of return(rs) = Risk-free rate + Beta(Market risk premium) Required rate of return(rs)…

Q: Assume that you manage a $10.00 million mutual fund that has a beta of 1.05 and a 9.50% required…

A: A portfolio comprises of different securities, funds, assets and derivates which are purchased by…

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

A: Hi! Thank you for the question, As per the honor code, we are allowed to answer one question at a…

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: 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: Assume that the risk-free rate of return is 4% and the market risk premium (Le., Rm- R:) is 896. If…

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

Q: Suppose the rate of return on short-term government securitles (percelved to be risk-free) Is about…

A: According to CAPM model, Ke=Rf+beta ×Rm-Rf where, Rf = risk free return Rm= market return

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: Treasury bills currently have a return of 2.5% and the market risk premium is 7%. If a firm has a…

A: The cost of equity can be calculated with the help of CAPM equation. The risk free rate is usually…

Q: The treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to…

A: a) Risk free Rate = 6% Market Return = 10%

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

A: Required rate of return: Required return = Risk free rate+Beta*Market risk premium Required return =…

Q: 1) Suppose the rate of return on short-term government securities (perceived to be risk-free) is…

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

Q: Consider the following for a firm. Its stock price (P0) is at $50, its payout ratio (POR) is 0.4,…

A: The share price is the current market price of the share. It is the price of the share at any…

Q: Assume that the risk-free rate of return is 46 and the market risk premium (ie., Rm- R) is 8%. If…

A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,…

Q: You put half of your money in a stock that has an expected return of 14% and a standard deviation of…

A: Formula used for calculating slope is:

Q: Suppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereas stock B has a…

A: Total risk of the stock can be calculated by squaring the values of the stock volatility. It can…

Q: Porter Inc.'s stock has an expected return of 12.25%, a beta of 1.25, and is in equilibrium. If the…

A: Given: Expected return = 12.25% Beta = 1.25 Risk free rate = 5%

Q: If the expected rates of return on Portfolio A and B are 11% and 14% respectively and the Beta of A…

A: CAPM or Capital Asset Pricing Model is a model which defines the relationship between expected…

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: The expected return on Mike's Seafood shares is 15.8 per cent. If the expected return on the market…

A: Expected return of a stock can be calculated using Capital Asset Pricing Model (CAPM) as: = Risk…

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: Assume that the risk-free rate of return is 49% and the market risk premium (Le., Rm- R:) is 896. If…

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

Q: ave $375,000 in​ cash, and you decide to borrow another $63,750 at a 7% interest rate to invest in…

A: The overall return earned over a duration of time from owning an asset or a portfolio of assets is…

Q: A treasury bill pays a 6% rate of return. The market portfolio pays 15% with a probability of 20% or…

A: A treasury bill is issued by the government as short-term security. They have a maturity of less…

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

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: what is the new value of the portfolio, and what return did it earn? After the price change, what…

A: Expected return refers to the return earn by an investor on the amount invested during a period of…

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

A: The capital asset pricing model (CAPM) represents the minimum rate of return required by investors…

Q: y where the risk-free interest rate is 19% and the expected return of the market is 25%, the beta…

A: A. The expected returns can be calculated as follows : Calculations for above :

Q: Suppose the rate of return on short-term government securities (perceived to be risk-free) is about…

A: according to CAPM model: rs=rf+βs×rm-rfwhere,rf= risk free returnrm= market returnβs= beta

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

A: Rate at which dividend is grow year by year is called dividend growth rate. It can be same every…

Q: . Capital Asset Pricing Model A. Suppose you invest $400,000 in Treasury Bills that have a yield to…

A:

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 risk-free rate of return is 1 percent, and the expected return on the market is 7.1 percent.…

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

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: Cooley Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium…

A: According to CAPM  Required rate =Risk free rate +Beta x market risk premium

Q: You have $96,055 to invest in two stocks and the risk-free security. Stock A has an expected return…

A: The investment in stock B is $32,861 from the total value of investment is $96,055. Remaining…

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.