Foundations of Finance (9th Edition) (Pearson Series in Finance)
Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
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Chapter 6, Problem 11MC
Summary Introduction

To determine: The rate of return for Company W and Company T.

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The Treasury bill rate at the time of estimation is 15% with a beta of 2.0 and the expected return on the market is 20%. What is the firm’s required rate of return ?
a.  Given the following​ holding-period returns, LOADING... ​, compute the average returns and the standard deviations for the Zemin Corporation and for the market. b.  If​ Zemin's beta is 1.87 and the​ risk-free rate is 6 ​percent, what would be an expected return for an investor owning​ Zemin? ​ (Note: Because the preceding returns are based on monthly​ data, you will need to annualize the returns to make them comparable with the​ risk-free rate. For​ simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by​ 12.) c.  How does​ Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the​ firm's systematic​ risk?   Month Zemin Corp. Market 1 5 ​% 6 ​% 2 2      1   3 2      0   4 −4   −1   5 4      3   6 3      4
The Consumer Price Index  (CPI) was recently forecast to be 3.3%., implying that 3.3% will be the annual inflation rate.  What is the minimum rate of return that a Treasury bill must earn to reach your investment goal of a 2% real rate of return? also, if Major Company pays a $2.10 annual cash dividend (D0) and it plans to keep the dividend at $2,10 for the future since no future growth is anticipated. If the stockholders require a rate of return of 12 percent, what is the price of the common stock?
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