14. Kimberly Motors has a beta of 1.40. the Thill rate is 3.00%, and the T-bond...

Question

Question

Answer 1

Answer #1

To arrive at the firm's required rate of return, we will use the Capital Asset Pricing Model (CAPM)

As per CAPM :-

Firm's required rate of return = Risk free Rate of Return + Beta of the Stock * (Expected Rate of Return of Market - Risk free Rate of Return)

Risk free Rate of Return = T-bond rate of 7%

Beta of Stock = 1.4

Expected Rate of Return of Market = 13%

Hence, Firm's required rate of return = 7% + 1.40 * ( 13% - 7%)

= 7% + 8.4% = 15.4%

Hence, Answer is Option E

Answer 2

Similar Homework Help Questions

10. What is their Expected Current Yield (CY)? 5.78% b. 6.09% c. 6.39% d. 7.50% e....

10. What is their Expected Current Yield (CY)? 5.78% b. 6.09% c. 6.39% d. 7.50% e. 6.25% 11. What is their Capital Gain Yield (CGY)? a. 0.54% b. 6.09% c. 0.42% d. 0.65% e. 0.62% 12. This bond is a discount bond. a. True b. False 13. What is their yield to Call (YTC)? a. 5.78% b. 14.93% e. 6.39% d. 9.43% e. 13.84% 14. Kimberly Motors has a beta of 1.40, the T-bill rate is 3.00%, and the T-bond...
Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, an...

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 15.00%. Using the SML, what is the firm's required rate of return? a. 17.50% b. 17.55% c. 17.60% d. 17.65% e. 17.70%
Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per...

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 12.50%. Using the SML, what is the firm's required rate of return? 11.63% 12.529

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per...

Gardner Electric has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 12.50%. Using the SML, what is the firm's required rate of return? 11.63% 12.529
please show your work. This is the information for the problems l, 2,3, 4 and 5....

please show your work. This is the information for the problems l, 2,3, 4 and 5. Darby Inc.'s bonds currently sell for S 900 nve u par value of $1,000. They pay a S65 annual coupon and have a 1S-year maturity, but they can be called in 5 years at $1,020. 1. This bond is a discount bond. a. True b. False 2. What is their yield to maturity (YTM)? a. 5.78% b. 7.64% с 6.39% d. 6.71% e. 7.05%...
ADAS a Styles Styl Par 10. Nagel Equipment has a beta of 0.88 and an expected...

ADAS a Styles Styl Par 10. Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 12.50%. Using the SML, what is the firm's required rate of return? a. 11.34% b. 11.63% c. 11.92% d. 12.22%...

8. Kollo Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflatio...

8. Kollo Enterprises has a beta of 1.10, the real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, and the market risk premium is 4.70%. What is Kollo's required rate of return?
The cost of capital for retained earnings is a market driven b. calculated using the Geurts...

The cost of capital for retained earnings is a market driven b. calculated using the Geurts Valuation Model ( GVM). c affected by the tax rate of the firm d. subject to flotation costs. e difficult to estimate. 9 Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00 % per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years...
Bill Company's stock has a beta of 1.40, the risk-free rate is 4.25 required rate of...

Bill Company's stock has a beta of 1.40, the risk-free rate is 4.25 required rate of return? % , and the market risk premium is 6.50 %. What is Bill's 11.36 % 11.65% 11.95% 12.25% 13.35%

Chimney Rock Corporation has a beta coefficient of 14 and a required rate of return of...

Chimney Rock Corporation has a beta coefficient of 14 and a required rate of return of 17 percent market risk premium, r - is currently 7.5 percent. Due to the increasing deficit, the Federal System forecasts that inflation will increase by 1.5 percentage points (150 basis points). If the slo SML is constant, what is Chimney Rock's new required rate of return? a. 15.00% b. 16.50% c. 17.75% d. 18.50% e. 20.25%