you need to estimate the equity cost of capital for XYZ Corp. You have the following...
you need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns. What was XYZ's average historical return? Complete the market's and XYZ's excess returns for each year. Estimate XYZ's beta. Estimate XYZ's historical alpha. Suppose the current risk free rate is 4% and you expect the market return to be 7%. Use CAPM to estimate an expected return for XYZ Corp stock. Would you base your estimate of XYZ's equity of cost of capital on your answer in part A or in Part b. Year 2011 risk free 2% Market return 7% XYZ return 12% 2012 1% -41% -38%
I have included all the information including the past years is at the bottom of question
Homework Answers
![Requirement-1: XYZ Companys 2011 return XYZ Companys 2012 return XYZs average historical return 12% 38% -13% (12%-38%) / 2] Requirement-2: Excess return Actual return Risk-free Rate XYZ Company 2011 12% 2% 10% Market Actual return Risk-free Rate Excess return 2011 796 2% 5% 2012 -41% 1% -42% 2012 -38% 1% -39% Beta Change in XYZs exces return/ Change in Markets excess return Change in XYZs exces return Change in Markets excess return Beta 49% 47% 1.04 [ 10%-(-39%-10% + 39%-49%) 5%-(-42%-5% + 42%-47%) [49% / 47%)](http://img.homeworklib.com/questions/1f41efc0-78b6-11ea-9fc9-f39e31446454.png?x-oss-process=image/resize,w_560)
![Using CAPM, Cost of Equity Risk-free Rate [Beta x (Market Return - Risk-free Rare)] Risk-free Rate Beta Market Return Cost of Equity 496 1.04 [As calculated in Requirement-2] 7% 7.13% {4% + [1.04 x (796-4%) ]}](http://img.homeworklib.com/questions/1f964580-78b6-11ea-a279-6f1c0adcf826.png?x-oss-process=image/resize,w_560)
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you need to estimate the equity cost of capital for XYZ Corp.
You have the following...
You need to estimate the equity cost of capital for XYZ Corp. You have the following...
You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns: E a. What was XYZ's average historical return? b. Compute the market's and XYZ's excess returns for each year. Estimate XYZ's beta. c. Estimate XYZ's historical alpha. d. Suppose the current risk-free rate is 2%, and you expect the market's return to be 10%. Use the CAPM to estimate an expected return for XYZ Corp.'s stock. e. Would you...
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Heino Inc., hired you as a consultant to help them estimate their cost of capital. You have...
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In applying the CAPM to estimate the cost of equity capital, which of the following elements is not subject to dispute? a) the market risk premium b)the stock's beta coefficient c) the risk-free rate d) all of the above are subject to dispute The answer is D, but i'm searching for a detailed explaination on why its correct.
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You need to estimate the equity cost of capital for XYZ Corp. You have the following data available regarding past returns: E a. What was XYZ's average historical return? b. Compute the market's and XYZ's excess returns for each year. Estimate XYZ's beta. c. Estimate XYZ's historical alpha. d. Suppose the current risk-free rate is 2%, and you expect the market's return to be 10%. Use the CAPM to estimate an expected return for XYZ Corp.'s stock. e. Would you...
3. The basics of the Capital Asset Pricing Model Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply. Expected returns are based on individual investor risk sensitivity. Investors have homogeneous expectations. There are no taxes. All investors focus on a single holding period. Consider the equation for the Capital Asset Pricing Model (CAPM): = TRF + OM-TRF) x Cover o In this equation, the term (OM-TRF) represents the Suppose that the market's...
7-20. Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Year 2011 2012 2013 2014 2015 Stock X Stock Y Market 14% 13% 12% 19 7 10 - 16 -5 -12 3 s11 20 11 15 - Assume that the risk-free rate is 4%, the market risk premium is 5%, the beta for Stock X is 1.50, and the beta for Stock Y is 0.46: a. What are the required rates of return...
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