To determine: The
Introduction:
CAPM is abbreviated as
Risk-free Rate is the he optimal rate on an investment that can be attained deprived of acquiring any risk whereby the stockholder is guaranteed of getting both original principal and a marginal profit during the specified time period. Market Risk Premium is the estimated by initially discovering the expected
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Corporate Finance (The Mcgraw-hill/Irwin Series in Finance Insurance and Real Estate)
- Use the internet to find a publicly-held companys annual report. Locate the section that comments on the Stockholders Equity section of the financial reports. What additional insights are you able to learn by looking further into the commentary? Is there anything that surprised you or that you think is missing and could help you if you were deciding whether to invest $100,000 of your savings in this companys stock?arrow_forwardIf a firm has debt showing on its balance sheet. We can find the beta value of the stock from Yahoo! Finance or other financial sources. Is the beta the levered beta or the unlevered beta? A. Levered beta B. Unlevered betaarrow_forwardIf you have a choice to invest your 1 million dollars in bonds or stocks where are you going to invest? Can you explain the factors that made you choose one but not the other? That is to say what market conditions you have to take into consideration in this investment? can you write to me around 300 wordsarrow_forward
- What are some examples of the analysts’ recommendations for the stocks and the forecasted growth rates for Amazon?arrow_forwardWhy do technical analysts look at the moving average of a company’s stock price, and why do they look at trend lines? (Did you know that technical analysis is used for bond investing too?)arrow_forwardSubject :- Finance Preston knows his firm's stock has a beta of 1.17, and he'd like to use the CAPM to estimate the cost of equity. If the expected market risk premium is 8.7% and the current T-Bill rate is 2.5%, what should he use as the estimate for the cost of equity? Enter your answer as a decimal and show 4 decimal places. For example, if your answer is 15.55%, enter .1555.arrow_forward
- Preston knows his firm's stock has a beta of 1.17, and he'd like to use the CAPM to estimate the cost of equity. If the expected market risk premium is 8.7% and the current T-Bill rate is 2.5%, what should he use as the estimate for the cost of equity? Enter your answer as a decimal and show 4 decimal places. For example, if your answer is 15.55%, enter .1555.arrow_forwardMy class is called Quantitative analysis, so I believe it falls under Statistics. My question is: As a financial advisor, you are assigned a new client who is considering investing in one of two stocks, A or B. The table below shows information about the performance of stocks A and B last year. Return Standard Deviation Stock A 15 % 8.3% Stock B 14% 2.1% As a financial advisor, are there factors other than return and risk that should be considered in making this decision? Based on these factors, what stock would you recommend to the client? What reasons will you convey to your client to justify your decision in recommending this stock? How will this recommendation impact the client? I just need help with part 4arrow_forwardI need an answer for this specific question please LCT Computers is listed on the Alternative Investment Market (AIM) at the London Stock Exchange. The current market price of their shares is £80 per share. Last year they paid a dividend of £4 per share. This year they plan to pay £4.20 and expect the dividend to grow by 1.39% in the foreseeable future as it did between last year and this year. The finance director of LCT Computers has also collected some information from the market that suggests the treasury rates in the United Kingdom are currently 1.5 percent and the market return is estimated to be 9.5 percent. His calculations also suggest that Brian Computers has a beta of 0.9. What will be the cost of equity for Brian Computers using: the Constant Dividend Growth Model? the Capital Asset Pricing Model?arrow_forward
- The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. The risk-free rate on long-term Treasury bonds is 8.04%. Assume that the market risk premium is 6%. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns.arrow_forward(a) If Roxy Inc. were to be 100% equity financed, what would be a reasonable estimate of the expected return on Roxy's equity? What is Roxy's WACC? expected return on equity is: Roxy's WACC is: [SHOW YOUR WORKING]arrow_forwardSome investors use the Sharpe ratio as a way of comparing the benefits of owning shares of stock in a company to the risks. The Sharpe ratio of a stock is defined as the ratio of the difference between the mean return on the stock and the mean return on government bonds (called the risk-free rate rf ) to the SD of the returns on the stock. The mean return on government bonds is rf = 0.03% per day. The table below describes the daily return of three stocks. Date APPLE TESLA GM 01/10/2020 0.85% 4.46% 2.67% 02/10/2020 -3.23% -7.38% 0.26% 05/10/2020 3.08% 2.55% 1.64% 06/10/2020 -2.87% -2.75% -1.81% 07/10/2020 1.70% 2.73% 4.01% 08/10/2020 -0.10% 0.15% 1.87% 09/10/2020 1.74% 1.90% -0.16% 12/10/2020 6.35% 1.91% 0.16% 13/10/2020 -2.65% 0.98% -1.06% 14/10/2020 0.07% 3.28% -0.63% 15/10/2020 -0.40% -2.69% 2.90% 16/10/2020 -1.40% -2.05% 2.64% 19/10/2020 -2.55%…arrow_forward
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