INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 9, Problem 18PS
Summary Introduction
To calculate:
The extra amount that the investor has to offer in case the beta of the firm is considered to be 0 instead of 1
Introduction:
Security market line refers to the line drawn over the chart that represents CAPM,
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Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%.I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If I think the beta of the firm is .5, when in fact the beta is really 1, how much more will I offer for the firm than it is truly worth?
I am buying a firm with an expected perpetual cash flow of $900 but am unsure of its risk. If I think the beta of the firm is 0, when the beta is really 1, how much more will I offer for the firm than it is truly worth? Assume the risk-free rate is 6% and the expected rate of return on the market is 20%. (Input the amount as a positive value.)
AnthroPort has a beta of 1.1 and its RWACC is 13.6 percent. The market risk premium is 7.2 percent and the risk-free rate is 2.3 percent. The firm's cash flow at Time 4 is $28,800 with a growth rate of 2.1 percent. What is the value of the firm at Time 4?
Chapter 9 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
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