CFIN -STUDENT EDITION-TEXT
6th Edition
ISBN: 9781337407359
Author: BESLEY
Publisher: CENGAGE L
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Chapter 11, Problem 6PROB
Summary Introduction
CAPM:
Calculate the cost of
Given risk free rate is 5%and expected market risk premium is 7% and beta is
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What is the rate of return for a company if its β is 1.8, risk free rate of return is 17% and the market rate or return is 25%? (4
a. Given the following information, calculate the expected value for Firm C’s EPS. Datafor Firms A and B are as follows: E(EPSA) =$5.10, σA =$3.61, E(EPSB) =$4.20, and σB = $2.96.
b. You are given that σC = $4.11. Discuss the relative riskiness of the three firms’ earnings.
Suppose the current risk-free rate of return is 3.5 percent and the expected market return is 9 percent. Fashion Faux-Pas’ common stock has a beta coefficient equal to 1.4. Using the CAPM approach, compute the firm’s cost of retained earnings.
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- What is the market return if the company's cost of equity is 11.68% and the company has a beta coefficient of 1.8. The expected risk free return is 5.25%arrow_forwardSuppose that we have this information about the current market return and the risk-free return: • The market return is 12%, the risk free return is 8%, and the ẞ is 1.4. Calculate the cost of equity.arrow_forwardAssume that you are a consultant to Thornton Inc., and you have been provided with the following data: risk 1.8. What is the cost of equity from free rate rRF = 5.5%; market risk premium RPM retained earnings based on the CAPM approach? = 6.0%; and b =arrow_forward
- Suppose the current risk-free rate of return is 3.5%, and the expected market return is 9%. Fashion Faux-Pas common stock has a beta coefficient equal to 1.4. Using the CAPM approach, compute the firm's cost of retained earnings.arrow_forwardIf risk free rate is 2%, market risk premium (also called the equity risk premium) is 5%, and a company has a beta of 1.5. What is the company’s cost of equity?arrow_forwardAssume that the Collins Company has a beta of 1.8 and that the risk-free rate of return is 2.5 percent. If the equity-risk premium is six percent, calculate the cost of equity for the Collins Company using the capital asset pricing model.arrow_forward
- assume that the risk free interest rate is 3%, the market rate of return is 7% and the beta for the company X is 2. given this information, the non-diversifiable risk for this company is? The required rate of return for this company is?arrow_forwardThe estimated beta (β) of a firm is 1.7. The market return (rm) is 14 %, and the risk-free rate (rf) is 7%. Estimate the cost of equity (ie).arrow_forwardSuppose the market risk premium is 4.0 % and the risk-free interest rate is 3.0%. Use the data below to calculate the expected return of investingin: Industry Beta Expected Return Cisco Systems, Inc. 2.28arrow_forward
- Company Q has earnings of $3.00 per share, a market price of $25, and a beta of 1.25. The risk-free rate is 3% and the risk premium for the market as a whole is 5%. a. What is the expected return on the market? b. What is the current P/E ratio for Company Q?arrow_forwardSuppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. a. Calculate Stock B’s beta. b. If Stock B’s beta were 0.80, what would be its new rate of return?arrow_forwardAssume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 16%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.8.arrow_forward
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