FUND.OF CORP.FIN.(LL)-W/ACCESS >CUSTOM<
11th Edition
ISBN: 9781260100259
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 13, Problem 16QP
Using
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
CAPM 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?
[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
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%
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
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
- 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_forward7. 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_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_forward
- 12.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_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_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
- 5) Two firms have 0.75 difference in their beta and 5% difference in their expected return, what is the implied price of beta, risk free rate and market return?arrow_forward7. 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_forward8) A public firm’s beta is 1.5. The expected market return is 5%, risk-free rate is assumed to be 1% constant. What is the expected return of the firm using CAPM?arrow_forward
- 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?arrow_forwardSuppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60 Re - Peat Company 0.85 10.80 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk - free rate?arrow_forwardCAPM: The Treasury bill rate is 5%, and the expected return on the market portfolio is 12%. On the basis of Capital Asset Pricing Model: What is the risk premium of the market? What is the risk premium of an investment with a beta of 1.5? What is the required return of an investment with a beta of 1.5? If an investment has a beta of .8 and offers an expected return of 11% (think of it as its IRR), does it have a positive NPV?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Portfolio return, variance, standard deviation; Author: MyFinanceTeacher;https://www.youtube.com/watch?v=RWT0kx36vZE;License: Standard YouTube License, CC-BY