FUND.OF CORP.FIN.(LL)-W/ACCESS >CUSTOM<
11th Edition
ISBN: 9781260100259
Author: Ross
Publisher: MCG CUSTOM
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Chapter 13, Problem 13QP
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he expected return on the market is 9%. The CAPM required rate of return on a stock with a beta of 1.5 is 14%. What is the risk-free rate?
0.33%
8%
1%
3%
Hi I also need help with this one as well
1. A stock has a beta of 1.25, the expected return on the market is 14 percent, and the risk-free rate is 5.2 percent. What must the expected return on this stock be?
2. A stock has an expected return of 13 percent, the risk-free rate is 4.5 percent, and the market risk premium is 7 percent. What must the beta of this stock be?
3. 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?
4. A stock has an expected return of 15 percent, its beta is 1.45, and the expected return on the market is 12 percent. What must be risk-free rate be?
[FIN220]
Assuming that the CAPM approach is appropriate, compute the required rate of return for each of the following stocks, given a risk-free rate of 0.07 and an expected return for the market portfolio of 0.13:
Stock
A
B
C
D
E
Stock Beta
1.4
1.2
1
0.6
0.9
Chapter 13 Solutions
FUND.OF CORP.FIN.(LL)-W/ACCESS >CUSTOM<
Ch. 13.1 - How do we calculate the expected return on a...Ch. 13.1 - In words, how do we calculate the variance of the...Ch. 13.2 - What is a portfolio weight?Ch. 13.2 - How do we calculate the expected return on a...Ch. 13.2 - Is there a simple relationship between the...Ch. 13.3 - What are the two basic parts of a return?Ch. 13.3 - Under what conditions will a companys announcement...Ch. 13.4 - Prob. 13.4ACQCh. 13.4 - Prob. 13.4BCQCh. 13.5 - What happens to the standard deviation of return...
Ch. 13.5 - What is the principle of diversification?Ch. 13.5 - Why is some risk diversifiable? Why is some risk...Ch. 13.5 - Why cant systematic risk be diversified away?Ch. 13.6 - Prob. 13.6ACQCh. 13.6 - What does a beta coefficient measure?Ch. 13.6 - True or false: The expected return on a risky...Ch. 13.6 - How do you calculate a portfolio beta?Ch. 13.7 - Prob. 13.7ACQCh. 13.7 - What is the security market line? Why must all...Ch. 13.7 - Prob. 13.7CCQCh. 13.8 - If an investment has a positive NPV, would it plot...Ch. 13.8 - What is meant by the term cost of capital?Ch. 13 - Prob. 13.1CTFCh. 13 - Prob. 13.5CTFCh. 13 - Beta is a measure of what?Ch. 13 - The slope of the security market line is equal to...Ch. 13 - Where would a negative net present value project...Ch. 13 - Prob. 1CRCTCh. 13 - Prob. 2CRCTCh. 13 - Systematic versus Unsystematic Risk [LO3] Classify...Ch. 13 - Systematic versus Unsystematic Risk [LO3] Indicate...Ch. 13 - Prob. 5CRCTCh. 13 - Diversification [LO2] True or false: The most...Ch. 13 - Portfolio Risk [LO2] If a portfolio has a positive...Ch. 13 - Beta and CAPM[LO4] Is it possible that a risky...Ch. 13 - Corporate Downsizing [LO1] In recent years, it has...Ch. 13 - Earnings and Stock Returns [LO1] As indicated by a...Ch. 13 - Determining Portfolio Weights [LO1] What are the...Ch. 13 - Portfolio Expected Return [LO1] You own a...Ch. 13 - Portfolio Expected Return [LO1] You own a...Ch. 13 - Prob. 4QPCh. 13 - Prob. 5QPCh. 13 - Prob. 6QPCh. 13 - Calculating Returns and Standard Deviations [LO1]...Ch. 13 - Calculating Expected Returns [LO1] A portfolio is...Ch. 13 - Returns and Variances [LO1] Consider the following...Ch. 13 - Returns and Standard Deviations [LO1] Consider the...Ch. 13 - Calculating Portfolio Betas [LO4] You own a stock...Ch. 13 - Calculating Portfolio Betas [LO4] You own a...Ch. 13 - Using CAPM[LO4] A stock has a beta of 1.15, the...Ch. 13 - Using CAPM[LO4] A stock has an expected return of...Ch. 13 - Using CAPM [LO4] A stock has an expected return of...Ch. 13 - Using CAPM [LO4] A stock has an expected return of...Ch. 13 - Using the SML[LO4] Asset W has an expected return...Ch. 13 - Reward-to-Risk Ratios [LO4] Stock Y has a beta of...Ch. 13 - Reward-to-Risk Ratios [LO4] In the previous...Ch. 13 - Using CAPM [LO4] A stock has a beta of 1.14 and an...Ch. 13 - Portfolio Returns [LO2] Using information from the...Ch. 13 - Prob. 22QPCh. 13 - Portfolio Returns and Deviations [LO2] Consider...Ch. 13 - Analyzing a Portfolio [LO2, 4] You want to create...Ch. 13 - Analyzing a Portfolio [LO2, 4] You have 100,000 to...Ch. 13 - Systematic versus Unsystematic Risk [LO3] Consider...Ch. 13 - SML [LO4] Suppose you observe the following...Ch. 13 - SML [LO4] Suppose you observe the following...Ch. 13 - Prob. 1MCh. 13 - Beta is often estimated by linear regression. A...Ch. 13 - Prob. 3MCh. 13 - Prob. 4MCh. 13 - Prob. 5M
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- 7. According to the CAPM, what is the expected rate of return for a stock with a beta of 1.2, when the risk-free rate is 6% and the market risk premium is 12%? A. 7.2%. B. 14.4%. C. 13.2%.arrow_forwardCAPM The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model: Draw a graph similar to show how the expected return varies with beta. What is the risk premium on the market? What is the required return on an investment with a beta of 1.5? If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV? If the market expects a return of 11.2% from stock X, what is its beta?arrow_forward11.12 Using CAPM A stock has a beta of 1.15, the expected return on the market is 11.1 percent, and the risk-free rate is 3.8 percent. What must the expected return on this stock be?arrow_forward
- 34 If the firm’s beta is 1.75, the risk-free rate is 8%, and the average return on the market is 12%, what will be the firm’s cost of equity using the CAPM approach? Group of answer choices 15.00% 16.05% 14.27% 14.00%arrow_forwardDhofar Energy Services has a Beta = 1.18 The risk-free rate on a treasury bill is currently 4.4% and the cost of equity has 20.70%. What is the market return? Select one: a. 0.2149 b. 0.1821 c. 0.2169 d. 1.1381 e. All the given choices are not correctarrow_forwardA stock has a beta of 1.5 and an expected return of 16.35%. What is the risk-free rate if the market rate of return is 12.5%? ______%arrow_forward
- 7. Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and T-bills provide a risk-free return of 4%. (LO12-1) How would you construct a portfolio from these two assets with an expected return of 8%? Specifically, what will be the weights in the S&P 500 versus T-bills? How would you construct a portfolio from these two assets with a beta of .4? Find the risk premiums of the portfolios in parts (a) and (b), and show that they are proportional to their betas.arrow_forward12.If the annual risk free rate is 2% and the expected annual return on the market portfolio is 7%, what would the expected annual return be on a share that has a beta of 2?arrow_forward10) Using the single index model, what is the alpha of a stock with beta of 1.5, a market return of 14%, risk free rate of 3% and the actual return of the stock is 19%? A) −1.37% B) 0.75% C) 1.80% D) 0.5% E) −3.12% Provide an accurate answer with justification.arrow_forward
- Stock Z is currently priced using an expected return of 12.5%. It has a beta of 1.25, and the risk-free rate is 2%. If the market portfolio return is 12%, calculate how this security is priced. Cannot determine from this information According to CAPM, this security is correctly priced According to CAPM, this security is overpriced According to CAPM, this security is underpricedarrow_forward2C) Assume that the CAPM holds in the economy. The following data is available about the market portfolio, the riskless rate, and two risky assets, W and X: The market portfolio has a standard deviation equals to 10%, stock W has an expected return equals to 16%, standard deviation equals to 12%, and beta equals to one, stock X has a standard deviation equals to 6% and beta equals to 0.7. The risk-free rate is 3%. What is the expected return and the beta of the market portfolio? What is the expected return on asset X? Does asset W lie on the Capital Market Line? Explain why or why not. Suppose you invested $100,000 in these two stocks. The beta of your portfolio is 1.25. How much did you invest in each stock? What is the expected return of this portfolio?arrow_forwardHi good evening, can you help me with this one A stock has an expected return of 15 percent, its beta is 1.45, and the expected return on the market is 12 percent. What must be risk-free rate be?arrow_forward
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