UPENN: LOOSE LEAF CORP.FIN W/CONNECT
17th Edition
ISBN: 9781260361278
Author: Ross
Publisher: McGraw-Hill Publishing Co.
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Chapter 11, Problem 14QP
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You are trying to figure out the risk-free rate estimate. Here is information about a stock's CAPM return:
The beta is 0.9
The market risk premium is 5.2%
The stock's return is 10%
Given this information, what is the estimate for the risk-free rate?
Answer:
How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example:
The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
A stock has an expected return of 13.5 percent, its beta is 1.16, and the expected return on the
market is 12.5 percent. What must the risk-free rate be?
Chapter 11 Solutions
UPENN: LOOSE LEAF CORP.FIN W/CONNECT
Ch. 11 - Diversifiable and Nondiversifiable Risks In broad...Ch. 11 - Systematic versus Unsystematic Risk Classify the...Ch. 11 - Expected Portfolio Returns If a portfolio has a...Ch. 11 - Diversification True or false: The most important...Ch. 11 - Portfolio Risk If a portfolio has a positive...Ch. 11 - Beta and CAPM Is it possible that a risky asset...Ch. 11 - Covariance Briefly explain why the covariance of a...Ch. 11 - Prob. 8CQCh. 11 - Prob. 9CQCh. 11 - Prob. 10CQ
Ch. 11 - Determining Portfolio Weights What are the...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You own a portfolio that...Ch. 11 - Portfolio Expected Return You have 10,000 to...Ch. 11 - Prob. 5QPCh. 11 - Calculating Returns and Standard Deviations Based...Ch. 11 - Calculating Expected Returns A portfolio is...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Returns and Standard Deviations Consider the...Ch. 11 - Calculating Portfolio Betas You own a stock...Ch. 11 - Calculating Portfolio Betas You own a portfolio...Ch. 11 - Using CAPM A stock has a beta of 1.15, the...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 13.4...Ch. 11 - Using CAPM A stock has an expected return of 11.2...Ch. 11 - Prob. 16QPCh. 11 - Prob. 17QPCh. 11 - Reward-to-Risk Ratios Stock Y has a beta of 1.20...Ch. 11 - Prob. 19QPCh. 11 - Portfolio Returns Using information from the...Ch. 11 - Prob. 21QPCh. 11 - Portfolio Returns and Deviations Consider the...Ch. 11 - Analyzing a Portfolio You want to create a...Ch. 11 - Prob. 24QPCh. 11 - Prob. 25QPCh. 11 - Prob. 26QPCh. 11 - Prob. 27QPCh. 11 - Prob. 28QPCh. 11 - Correlation and Beta You have been provided the...Ch. 11 - CML The market portfolio has an expected return of...Ch. 11 - Beta and CAPM A portfolio that combines the...Ch. 11 - Beta and CAPM Suppose the risk-free rate is 4.7...Ch. 11 - Systematic versus Unsystematic Risk Consider the...Ch. 11 - SML Suppose you observe the following situation:...Ch. 11 - Prob. 35QPCh. 11 - Prob. 36QPCh. 11 - Prob. 37QPCh. 11 - Minimum Variance Portfolio Assume Stocks A and 8...Ch. 11 - Prob. 1MCCh. 11 - Prob. 2MC
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- Now assume that the stock is currently selling at $30.29. What is its expected rate of return?arrow_forwardAn 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?arrow_forwardSuppose that the risk-free rate is 5% and that the market risk premium is 7%. What is the required return on (1) the market, (2) a stock with a beta of 1.0, and (3) a stock with a beta of 1.7?arrow_forward
- A stock has an expected return of 13.4 percent, its beta is 1.60, and the risk-free rate is 5.5 percent. What must the expected return on the market be?arrow_forward*Stock A has a beta of 1.3 and an expected return of 10.2. Stock B has a beta of 0.8 and an expected return of 8.7. If these stocks are priced correctly according to the CAPM, what is the risk-free rate? Give your answer in percentage to the nearest basis point.arrow_forwardA stock has an expected return of 11.0%, its beta is 0.95, and the risk-free rate is 6.00%. What must the expected return on the market be?arrow_forward
- Use the expected return-beta equation from the CAPM. What is the expected return for a stock if the risk-free rate is 4%, beta 0.9 and the expected return for the market portfolio is 6%?arrow_forwardQuestion: A stock has an expected return of 9.7 percent, its beta is .89, and the risk-free rate is 2.9 percent. What must the expected return on the market be?arrow_forwardc. A stock has an expected return of 15 percent, its beta is 0.9, and the risk-free rate is 6 percent. What must the expected return on the market be?arrow_forward
- Assume that the risk-free rate is 2.8 percent, and that the market risk premium is 4.8 percent. If a stock has a required rate of return of 16.1 percent, what is its beta? Your Answer: Answerarrow_forwardUsing CAPM A stock has an expected return of 10 percent, its beta is .70, and the risk-free rate is 5.5 percent. What must the expected return on the market be?arrow_forwardA stock has a beta of 1.04, the expected return on the market is 11.75, and the risk-free rate is 3.75. What must the expected return on this stock be? Can the calculator and excel solution be provided?arrow_forward
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