INVESTEMENTS (LL) W/CONNECT <CUSTOM>
11th Edition
ISBN: 9781264263554
Author: Bodie
Publisher: MCG
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Question
Chapter 9, Problem 19PS
Summary Introduction
To calculate:
The beta of stock, if the expected return of the stock stands to be 6%
Introduction:
Beta refers to the measure pertaining to volatility of stock with respect to the market. The individual stock are ranked in accordance with how much deviation it has when compared with the market. The beta of stock that swings more in comparison to market possess beta greater than 1.
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Assume that the risk-free rate is 2.8 percent, and that the market risk premium is 4.8
percent. If a stock has a required rate of return of 16.1 percent, what is its beta?
Your Answer:
Answer
How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example:
The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
Assume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required return on the market, on a stock with a beta of 1.0, and on a stock with a beta of 1.2?
Chapter 9 Solutions
INVESTEMENTS (LL) W/CONNECT <CUSTOM>
Ch. 9 - Prob. 1PSCh. 9 - Prob. 2PSCh. 9 - Prob. 3PSCh. 9 - Prob. 4PSCh. 9 - Prob. 5PSCh. 9 - Prob. 6PSCh. 9 - Prob. 7PSCh. 9 - Prob. 8PSCh. 9 - Prob. 9PSCh. 9 - Prob. 10PS
Ch. 9 - Prob. 11PSCh. 9 - Prob. 12PSCh. 9 - Prob. 13PSCh. 9 - Prob. 14PSCh. 9 - Prob. 15PSCh. 9 - Prob. 16PSCh. 9 - Prob. 17PSCh. 9 - Prob. 18PSCh. 9 - Prob. 19PSCh. 9 - Prob. 20PSCh. 9 - Prob. 21PSCh. 9 - Prob. 22PSCh. 9 - Prob. 23PSCh. 9 - Prob. 24PSCh. 9 - Prob. 1CPCh. 9 - Prob. 2CPCh. 9 - Prob. 3CPCh. 9 - Prob. 4CPCh. 9 - Prob. 5CPCh. 9 - Prob. 6CPCh. 9 - Prob. 7CPCh. 9 - Prob. 8CPCh. 9 - Prob. 9CPCh. 9 - Prob. 10CPCh. 9 - Prob. 11CPCh. 9 - Prob. 12CP
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- You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?arrow_forwardAssume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%.A stock has an expected rate of return of 4%. What is its beta?arrow_forwardSuppose that the risk-free rate is 5% and that the market risk premium is 7%.What is the required return on (1) the market, (2) a stock with a beta of 1.0,and (3) a stock with a beta of 1.7?arrow_forward
- (d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates of return of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.arrow_forwardsuppose a risk free rate is 6% and the market premium is 7%. D1 is 1.25 per share and stock beta is 1.15. What is the required return?arrow_forwardAssume the expected return on the market is 16 percent and the risk-free rate is 4 percent. -What is the expected return for a stock with a beta equal to 0.50? - What is the market risk premium?arrow_forward
- Suppose that the risk-free rate is 3% and the market risk premium is 8%. According to the CAPM,what is the required rate of return on a stock with a beta of 2?arrow_forwardSuppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. a. Calculate Stock B’s beta. b. If Stock B’s beta were 0.80, what would be its new rate of return?arrow_forwardc. A stock has an expected return of 15 percent, its beta is 0.9, and the risk-free rate is 6 percent. What must the expected return on the market be?arrow_forward
- Assume that the risk-free rate is 3.6% and the market risk premium is 4%. What is the required rate of return on a stock with a beta of 1.4?arrow_forwardAssume a stock has a required return on equity, ?? = 12%. The risk-free rate is ?? = 5% and themarket return is ?? = 10%. Given this information, what is the beta of the stock?arrow_forwardThe risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is the required rate of return on the stock, E(Ri)? Use the CAPM equation.arrow_forward
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