ZuoTi.Pro
Question

The​ risk-free rate is 3​% and you believe that the​ S&P 500's excess return will be...

The​ risk-free rate is 3​% and you believe that the​ S&P 500's excess return will be 10.6​% over the next year. If you invest in a stock with a beta of 1.1 (and a standard deviation of 30​%),

what is your best guess as to its expected excess return over the next​ year?

The expected excess return over the next year is? (Round to two decimal​ places.)

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Market excess return refers to the market return above the risk free rate.
So, here we have (Market return-Risk free rate) over next year=10.6​%
Stock beta=1.1
Excess Return over next year = Beta *(Excess Market Return)
=1.1*10.6​%=0.1166 or 11.66%

So, the expected excess return over the next year is 11.66%

0 0
Add a comment
Know the answer?
Add Answer to:
The​ risk-free rate is 3​% and you believe that the​ S&P 500's excess return will be...
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

  • You hear on the news that the​ S&P 500 was down 2.2% today relative to the​...

    You hear on the news that the​ S&P 500 was down 2.2% today relative to the​ risk-free rate​ (the market's excess return was −2.2%). You are thinking about your portfolio and your investments in Zynga and Proctor and Gamble. a. If​ Zynga's beta is 1.1​, what is your best guess as to​ Zynga's excess return​ today? b. If Proctor and​ Gamble's beta is 0.6​, what is your best guess as to​ P&G's excess return​ today? a. If​ Zynga's beta is...

  • The expected return of the S&P 500 stock index is 9% and the risk-free rate is...

    The expected return of the S&P 500 stock index is 9% and the risk-free rate is 2%. Using your birthdate as decimal number as the beta for your portfolio. What would you expect the return on your portfolio to be as a percentage? For example if your birthday is September 7th, you would use a beta of 0.907. If you birthday was January 14th, your beta you would use is 0.114. If you birthday is October 3rd, you would use...

  • P 12-24 (similar to) Question Help You hear on the news that the S&P 500 was...

    P 12-24 (similar to) Question Help You hear on the news that the S&P 500 was down 1.8% today relative to the risk-free rate (the market's excess return was-1.8%). You are thinking about your portfolio and your investments in Zynga and Proctor and Gamble a. If Zynga's beta is 1.2, what is your best guess as to Zynga's excess return today? b. If Proctor and Gamble's beta is 0.6, what is your best guess as to P&G's excess return today?...

  • 3/191 3/199: P 12-24 (similar to) Question Help - You hear on the news that the S&P 500 was down 1.3% today rela...

    3/191 3/199: P 12-24 (similar to) Question Help - You hear on the news that the S&P 500 was down 1.3% today relative to the risk-free rate (the market's excess return was - 1.3%). You quest are thinking about your portfolio and your investments in Zynga and Proctor and Gamble. a. If Zynga's beta is 1.3, what is your best guess as to Zynga's excess return today? b. If Proctor and Gamble's beta is 0.6, what is your best guess...

  • You are analyzing a stock that has a beta of 1.28. The risk-free rate is 3.7%...

    You are analyzing a stock that has a beta of 1.28. The risk-free rate is 3.7% and you estimate the market risk premium to be 7.6%. If you expect the stock to have a return of 12.5% over the next year, should you buy it? Why or why not? The expected return according to the CAPM is %. (Round to two decimal places.) Should you buy the stock? (Select the best choice below.) O A. No, because the expected return...

  • Homework Help! You are analyzing a stock that has a beta of 1.20. The risk-free rate...

    Homework Help! You are analyzing a stock that has a beta of 1.20. The risk-free rate is 5.0% and you estimate the market risk premium to be 6.0%. If you expect the stock to have a return of 11.0% over the next year, should you buy it? Why or why not? The expected return according to the CAPM is %. (Round to two decimal places.) Should you buy the stock? (Select the best choice below.) O A. No, because the...

  • Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

    Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 8%, and the market's average return was 16%. Performance is measured using an index model regression on excess returns. Stock 18 + 1.2 (ry - rp) 0.677 Index model regression estimates R-square Residual standard deviation, (e) Standard deviation of excess returns Stock B 28 +0.8(IN - rf) 0.487 20.88 28.30 126 23.38 a. Calculate the following statistics for each stock:...

  • 1. Consider historical data showing that the average annual rate of return on the S&P 500...

    1. Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index...

  • Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

    Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the market’s average return was 14%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.635 0.466 Residual standard deviation, σ(e) 11.3% 20.1% Standard deviation of excess returns 22.6% 26.9% a. Calculate the following statistics for each...

  • Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate...

    Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 5%, and the market’s average return was 12%. Performance is measured using an index model regression on excess returns. Stock A Stock B Index model regression estimates 1% + 1.2(rM − rf) 2% + 0.8(rM − rf) R-square 0.599 0.448 Residual standard deviation, σ(e) 10.7% 19.5% Standard deviation of excess returns 22% 25.7% a. Calculate the following statistics for each...

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