Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
14th Edition
ISBN: 9781337587563
Author: MOYER, R. Charles; McGuigan, James R.; Rao, Ramesh P.
Publisher: Cengage Learning
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Chapter 8, Problem 22P
a)
Summary Introduction
To determine: Required
b)
Summary Introduction
To determine: Probability that the stock of Company N is undervalued at its current price of $25.
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Wildings, Inc. common stock has a beta of 1.2. If the expected risk free return is .04 and the expected market risk premium is .09, what is the expected return on Wildings' stock?
Instruction: Round to three decimal places
A certain stock has a beta of 1.2. If the risk-free rate of return is 4.5 percent and the market risk premium is 8 percent, what is the
expected return of the stock? What is the expected return of a stock with a beta of 1.08? (Do not round intermediate calculations.
Enter your answers as a percent rounded to 2 decimal places.)
Beta of 1.2 expected return
%
Beta of 1.08 expected return
%
An investor is considering whether to invest in shares of Stock ABC or risk-free bonds.
The stock pays dividends continuously at a rate of 1%, has an expected annual yield of
9%, and has a volatility of 24%. The continuously compounded risk-free rate is 1.8%.
Assuming that prices for Stock ABC follow a lognormal distribution, calculate the
probability that an investment of X in Stock ABC would be worth less than an
investment of X in risk-free bonds after 5 years. [DM_05c_02]
You Answered
0.3975
O 0.4353
O 0.4164
Correct Answer
O 0.3785
0.3596
Chapter 8 Solutions
Bundle: Contemporary Financial Management, 14th + MindTap Finance, 1 term (6 months) Printed Access Card
Ch. 8 - Prob. 1QTDCh. 8 - Prob. 2QTDCh. 8 - Prob. 3QTDCh. 8 - Prob. 4QTDCh. 8 - Prob. 5QTDCh. 8 - Prob. 6QTDCh. 8 - Prob. 7QTDCh. 8 - Prob. 8QTDCh. 8 - Prob. 9QTDCh. 8 - Prob. 10QTD
Ch. 8 - Prob. 11QTDCh. 8 - Prob. 12QTDCh. 8 - Prob. 13QTDCh. 8 - Prob. 14QTDCh. 8 - Prob. 15QTDCh. 8 - Prob. 16QTDCh. 8 - Prob. 17QTDCh. 8 - Prob. 18QTDCh. 8 - Prob. 19QTDCh. 8 - Prob. 20QTDCh. 8 - Prob. 21QTDCh. 8 - Prob. 1PCh. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10PCh. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Prob. 13PCh. 8 - Prob. 14PCh. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 21PCh. 8 - Prob. 22PCh. 8 - Prob. 23PCh. 8 - Prob. 24PCh. 8 - Prob. 25PCh. 8 - Prob. 26PCh. 8 - Prob. 27PCh. 8 - Prob. 28P
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- You are thinking of buying a stock priced at $98 per share. Assume that the risk-free rate is about 4.7% and the market risk premium is 5.5%. If you think the stock will rise to $122 per share by the end of the year, at which time it will pay a $1.74 dividend, what beta would it need to have for this expectation to be consistent with the CAPM? The beta is (Round to two decimal places.)arrow_forwardThe risk-free rate of return is 2 percent, and the expected return on the market is 6.1 percent. Stock A has a beta coefficient of 1.3, an earnings and dividend growth rate of 5 percent, and a current dividend of $1.50 a share. Do not round intermediate calculations. Round your answers to the nearest cent. a. What should be the market price of the stock? $ b. If the current market price of the stock is $81.00, what should you do? The stock -Select- ✓ be purchased. c. If the expected return on the market rises to 14.1 percent and the other variables remain constant, what will be the value of the stock? $ d. If the risk-free return rises to 5 percent and the return on the market rises to 14.3 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.2 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- ✓the required return and…arrow_forwardThe risk-free rate of return is 1 percent, and the expected return on the market is 8.2 percent. Stock A has a beta coefficient of 1.5, an earnings and dividend growth rate of 7 percent, and a current dividend of $2.80 a share. Do not round intermediate calculations. Round your answers to the nearest cent. What should be the market price of the stock? $ If the current market price of the stock is $87.00, what should you do? The stock be purchased. If the expected return on the market rises to 11.9 percent and the other variables remain constant, what will be the value of the stock? $ If the risk-free return rises to 3 percent and the return on the market rises to 12.1 percent, what will be the value of the stock? $ If the beta coefficient falls to 1.3 and the other variables remain constant, what will be the value of the stock? $ Explain why the stock’s value changes in c through e. The increase in the return on the market the…arrow_forward
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