Homework Answers
a. Expected Return of Stock E =(P1-P0+D1)/P0
=(43.50-40+1.10)/40=11.50%
b. CAPM required rate =Risk free rate+Beta*Market Risk Premium
=1%+0.93*5% =5.65%
c. Since Expected Return is more than required rate it is
undervalued
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Finance 4310 Homework Problem Given the following information for Stock E: P = $40, P =...
Finance 4310 Homework Problem Given the following information for Stock E: P, = $40, P, =...
Finance 4310 Homework Problem Given the following information for Stock E: P, = $40, P, = $43.50, D, = $1.10 Be = 0.93, R, = 1%, Market Risk Premium = 5% a. What is the expected return on stock E based on the expected future cash flows? b. What is the required return based on the CAPM? c. Is stock E undervalued, correctly priced, or overvalued?
Finance 4310 Homework Problem Given the following information about Stock A: P. = $62.75 BA= 1.3...
Finance 4310 Homework Problem Given the following information about Stock A: P. = $62.75 BA= 1.3 D = $2.20 paid at end of year K = 11% annual R = 5% annual a. Estimate the price of stock A at the end of the year b. Suppose that Stock a is combined with two other stocks as follows: Stock Proportion Beta 0.25 0.40 0.35 1.3 0.9 1.1 What is the beta of the portfolio of three stocks?
Finance 4310 Homework Problem Given the following information about Stock A: P. = $62.75 BA= 1.3...
Finance 4310 Homework Problem Given the following information about Stock A: P. = $62.75 BA= 1.3 D = $2.20 paid at end of year K = 11% annual R = 5% annual a. Estimate the price of stock A at the end of the year b. Suppose that Stock a is combined with two other stocks as follows: Stock Proportion Beta 0.25 0.40 0.35 1.3 0.9 1.1 What is the beta of the portfolio of three stocks?
Please show all work! Correct answers are: Required Return= 7.48%, Expected Return = 11.53%, so undervalued...
Please show all work! Correct answers are:
Required Return= 7.48%, Expected Return = 11.53%, so
undervalued
Suppose that you have the following information about Firm K: P, = $49, ê, = $52.50, D, = $2.15 Bx = 0.92, Market Risk Premium = 6.5%, R, = 1.5% Is Firm K's stock overvalued, correctly priced, or undervalued? Support your answer with calculations and explain.
#11 and #13 (CAPM) The stock is appropriately priced and its expected annual return is 10.4%....
#11 and #13
(CAPM) The stock is appropriately priced and its expected annual return is 10.4%. The annual return on the 30-year Treasury is 3.5%, and the expected annual return on S&P 500 is 13%. What is the stock's beta coefficient? 12. (CAPM) The stock is appropriately priced and its expected annual return is 14.1%. The annual return on the 30-year Treasury is 2.5%, and the expected annual return on S&P 500 is 12%. What is the stock's beta coefficient?...
3. Stock Y has a beta of 2·16 and an expected return of 19.3%. If the...
3. Stock Y has a beta of 2·16 and an expected return of 19.3%. If the risk-free rate is 4% and market premium is 8%, is Stock Y correctly priced? why? Assume the CAPM holds.
please answer question #1 7 1. You are given the following equilibrium expected returns and risks...
please answer question #1
7 1. You are given the following equilibrium expected returns and risks E(R) - 12.2%; E(Re) - 15.5% BA -0.7; Be-1.25. c( 0.460.0615 a. What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 13%. Which one would you rather buy - A alone or the portfolio? Why? Ee19. 6 - OVAL BYA c. Given the SML...
question 2 Examples on Asset Pricing Mode 1. You are given the following equilibrium expected returns...
question 2
Examples on Asset Pricing Mode 1. You are given the following equilibrium expected returns and risks 7 (R- es-2 E(RA)- 12.2 % ; E(Ra)-15.5 % ; Ba-1.25 BA-0.7; .£{{¢*6,4 *రి 6 a What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 13 %. Which one would you rather buy- A alone or the portfolio? Why? (R) 4-6 7...
Problem 1 2pts] According to the CAPM, what is the expected return of the stock with...
Problem 1 2pts] According to the CAPM, what is the expected return of the stock with the standard deviation of the returns of 40% and the correlation between its returns and the market returns is -0.12 The market's expected return and standard deviation are 6% and 15%, respectively. The risk-free rate is 30 Problem 2 The risk-free rate is 1% and the market risk premium is 6%. Below table slows the ru characteristics of three stocks A, B, and C:...
1. You are analyzing a common stock with a beta of 1.5. The risk-free rate of...
1. You are analyzing a common stock with a beta of 1.5. The risk-free rate of interest is 5 percent and the expected return on the market is 15 percent. If the stock's return based on its market price is 21.5%, the stock is overvalued since the expected return is above the SML. the stock is undervalued since the expected return is above the SML. the stock is correctly valued since the expected return is above the SML. the stock...
Finance 4310 Homework Problem Given the following information for Stock E: P, = $40, P, = $43.50, D, = $1.10 Be = 0.93, R, = 1%, Market Risk Premium = 5% a. What is the expected return on stock E based on the expected future cash flows? b. What is the required return based on the CAPM? c. Is stock E undervalued, correctly priced, or overvalued?
Finance 4310 Homework Problem Given the following information about Stock A: P. = $62.75 BA= 1.3 D = $2.20 paid at end of year K = 11% annual R = 5% annual a. Estimate the price of stock A at the end of the year b. Suppose that Stock a is combined with two other stocks as follows: Stock Proportion Beta 0.25 0.40 0.35 1.3 0.9 1.1 What is the beta of the portfolio of three stocks?
Finance 4310 Homework Problem Given the following information about Stock A: P. = $62.75 BA= 1.3 D = $2.20 paid at end of year K = 11% annual R = 5% annual a. Estimate the price of stock A at the end of the year b. Suppose that Stock a is combined with two other stocks as follows: Stock Proportion Beta 0.25 0.40 0.35 1.3 0.9 1.1 What is the beta of the portfolio of three stocks?
Please show all work! Correct answers are:
Required Return= 7.48%, Expected Return = 11.53%, so
undervalued
Suppose that you have the following information about Firm K: P, = $49, ê, = $52.50, D, = $2.15 Bx = 0.92, Market Risk Premium = 6.5%, R, = 1.5% Is Firm K's stock overvalued, correctly priced, or undervalued? Support your answer with calculations and explain.
#11 and #13
(CAPM) The stock is appropriately priced and its expected annual return is 10.4%. The annual return on the 30-year Treasury is 3.5%, and the expected annual return on S&P 500 is 13%. What is the stock's beta coefficient? 12. (CAPM) The stock is appropriately priced and its expected annual return is 14.1%. The annual return on the 30-year Treasury is 2.5%, and the expected annual return on S&P 500 is 12%. What is the stock's beta coefficient?...
3. Stock Y has a beta of 2·16 and an expected return of 19.3%. If the risk-free rate is 4% and market premium is 8%, is Stock Y correctly priced? why? Assume the CAPM holds.
please answer question #1
7 1. You are given the following equilibrium expected returns and risks E(R) - 12.2%; E(Re) - 15.5% BA -0.7; Be-1.25. c( 0.460.0615 a. What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 13%. Which one would you rather buy - A alone or the portfolio? Why? Ee19. 6 - OVAL BYA c. Given the SML...
question 2
Examples on Asset Pricing Mode 1. You are given the following equilibrium expected returns and risks 7 (R- es-2 E(RA)- 12.2 % ; E(Ra)-15.5 % ; Ba-1.25 BA-0.7; .£{{¢*6,4 *రి 6 a What is the equation of the Security Market Line? b. A portfolio, made up of A (above) and another security, has a beta of 1.10 and expected return of 13 %. Which one would you rather buy- A alone or the portfolio? Why? (R) 4-6 7...
Problem 1 2pts] According to the CAPM, what is the expected return of the stock with the standard deviation of the returns of 40% and the correlation between its returns and the market returns is -0.12 The market's expected return and standard deviation are 6% and 15%, respectively. The risk-free rate is 30 Problem 2 The risk-free rate is 1% and the market risk premium is 6%. Below table slows the ru characteristics of three stocks A, B, and C:...
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