ZuoTi.Pro
Question

13. Assume that you are an analyst who uses the CAPM to evaluate stocks. There is a firm that has ROE of 0.50, a beta of 1.2,
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

expected return=dividend yield+capital gains yield=dividend yield+RoE*plowback ratio=6%+0.50*plowback ratio

required return=risk free rate+beta*(market return-risk free rate)=5%+1.2*(15%-5%)=17%

Undervalued when expected return is more than required return
6%+0.50*plowback ratio>17%
=>plowback ratio>22%

OPTION D

0 0
Add a comment
Know the answer?
Add Answer to:
13. Assume that you are an analyst who uses the CAPM to evaluate stocks. There is...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and...

    CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 9.87 % 14 % 0.9 B 11.16 14 1.2 C 12.88 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The risk-free...

  • Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and...

    Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta 14 8.78 % 14 % 0.8 10.83 1.3 11.65 1.5 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is...

  • You are provided the following information of a firm's stocks and bonds along with other pertinent...

    You are provided the following information of a firm's stocks and bonds along with other pertinent information. The stocks have a standard deviation of 50% and a correlation of 0.6 with the market index. The risk-free rate is 2%, and the market risk premium is 7%. The standard deviation of the market is 25%. The firm just paid dividends of $2.50 per share. Assume that the firm pays dividends annually and that the firm adjusts its dividends to maintain a...

  • Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. T...

    Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.30 % 16 % 0.7 B 9.90 16 1.1 C 12.30 16 1.7 Fund P has one-third of its funds invested in each of the three stocks....

  • Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C....

    Problem 8-13 CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) 1.3 Stock Expected Return Standard Deviation Beta 9.28 % 14 % 0.8 11.33 14 12.15 14 1.5 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate...

  • CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B...

    CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Standard Deviation 14% 14 14 Beta 0.9 1.3 1.7 Expected Return 9.60 % 11.42 13.24 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and...

  • 1) An analyst gathered the following financial information about a firm: Estimated (next year’s) EPS                         &nbsp

    1) An analyst gathered the following financial information about a firm: Estimated (next year’s) EPS                                       $10 per share Dividend payout ratio                                                             40% Required rate of return                                                           12% Expected long-term growth rate of dividends                       5% What is the analysts’ estimate of intrinsic value? Show work. 2) An analyst has made the following estimates for a stock: dividends over the next year $.60 long-term growth rate                         13% Intrinsic value                                     $24 per share The current price of the shares is $22. Assuming the...

  • CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for stocks A, B, and C. The...

    CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Standard DeviationBeta 0.9 1.2 1.5 StockExpected Return 14% 14 14 8.74% 9.98 11.23 Fund P has one-third of its funds invested in each of the three stocks. The risk- free rate is 5%, and the market is in...

  • Assume that CAPM holds, i.e. ri = ro+ B;(PM-ro) where Bi portfolio of stocks X, Y, and the risk-free asset. The beta of...

    Assume that CAPM holds, i.e. ri = ro+ B;(PM-ro) where Bi portfolio of stocks X, Y, and the risk-free asset. The beta of the portfolio is Bp a beta of 1.5 and Y has a beta of 2.0. Expected return of Y is 10% more than the expected return of X. Risk-free rate is 5%. What is the expected return of this portfolio? iM Your goal is to create a 0.7. X has

  • e Activity: CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A,...

    e Activity: CAPM, portfolio risk, and return Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 9.02% 14 % 0.8 B 10.34 14 1.1 с 12.54 14 1.6 Fund P has one-third of its funds invested in each of the three stocks. The...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT