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Problem 3 The risk-free rate is 2%, the market risk premium is 5%, and the size...
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:...
7. Here are data on two companies. The T-bill rate is 4% and the market risk...
7. Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company Forecasted return Standard deviation of returns $1 Discount Store Everything $5 12% 11% 8% 10% 1.5 1.0 Beta a. What would be the fair return for each company, according to the capital asset pricing model (CAPM)? b. Characterize each company in the previous problem as underpriced, overpriced, or properly priced.
Here are data on two companies. The T-bill rate is 4% and the market risk premium...
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company Forecast return Standard deviation of returns Beta $1 Discount Store 12% 8% 1.5 Everything $5 11% 10% 1.0 Characterize each company in the above table as underpriced, overpriced, or properly priced. Company $1 Discount Store Everything $5 (Click to select) (Click to select)
Use the graph below to answer the following two questions Security Market Line (SML) 20% 16%...
Use the graph below to answer the following two questions Security Market Line (SML) 20% 16% 12% 8% Required Return 4% Risk-Free Rate 096 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Relative Risk as Measured by Beta 19) A stock plotted in this graphical space that lies ABOVE the solid line would be considered: a. Overpriced b. Underpriced c. Accurately Priced d. Not enough information to answer this questiorn 20) The slope of the solid line...
16. The Fama-French three-factor model Consider the following two statements and identify which model each describes:...
16. The Fama-French three-factor model Consider the following two statements and identify which model each describes: This model uses a single risk factor, the variability of the stock with respect to the market portfolio, to explain the required return on a security or portfolio. Capital Asset Pricing Model Fama-French three-factor model This model is incorrect because the size effect it uses does not influence stock returns and the book-to-market value effect either is insignificant or is not a function of...
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%)...
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%) 6.8 -0.6 4.7 Stock Market (61) 1.0 0.9 0.3 Factor Risk Exposures Interest Rate Yield Spread (62) (63) -1.2 -0.4 0.2 1.4 1.3 Calculate the expected return for each of the stocks shown in the table above. Assume rf=3.4%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return P Expected return P2 Expected return P3
The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected...
The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on SDA Corp. common stock is 16%. The β of SDA Corp. common stock is 1.25. Within the context of the Capital Asset Pricing Model, is the common stock of SDA Corp. overpriced, underpriced or fairly priced?
Consider a 3-factor Arbitrage Pricing Theory (APT) model. Assuming a risk-free rate of 4%, calculate the...
Consider a 3-factor Arbitrage Pricing Theory (APT) model. Assuming a risk-free rate of 4%, calculate the expected return of this stock. Factor Risk Premium Sensitivity to each factor Change in GDP 5% 1 Change in interest rate 1% 0.5 Inflation ratio 2.5% 0.2 (4 marks) Consider the following portfolio composed of 3 stocks (A, B, C): Stock Quantity Price (£) Beta A 500 1.5 0.8 B 520 1.7 0.97 C 610 1.1 1.04 What is the beta of...
Problem, 6· (20 points total) Assume that the risk-free rate is 3% and the expected rate...
Problem, 6· (20 points total) Assume that the risk-free rate is 3% and the expected rate of return on the market portfolio s i 0%. (a) (5 points total) Graphically show what the SML (Security Market Line) looks like (1 point). Indicate where the risk-free asset and the market portfolio lie along the SML (1 point each). You can create this graph by hand or by computer. What is the slope of the SML? (1 point) What is the y-intercept...
The risk-free rate of return is 3.7 percent. The risk premium on the market portfolio is...
The risk-free rate of return is 3.7 percent. The risk premium on the market portfolio is 8.8 percent. The table below has information on 5 stocks. Can you figure out which one of them is correctly priced (.e., correctly compensates investors for the amount of systematic risk they are facing)? Stock Beta | #1 #2 Expected Return 9.47% 12.03 14.44 15.80 18.37 0.64 0.97 1.22 1.37 1.68 #3 #4 Multiple Choice O O O Multiple Choice Ο Ο Ο Ο...
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:...
7. Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company Forecasted return Standard deviation of returns $1 Discount Store Everything $5 12% 11% 8% 10% 1.5 1.0 Beta a. What would be the fair return for each company, according to the capital asset pricing model (CAPM)? b. Characterize each company in the previous problem as underpriced, overpriced, or properly priced.
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company Forecast return Standard deviation of returns Beta $1 Discount Store 12% 8% 1.5 Everything $5 11% 10% 1.0 Characterize each company in the above table as underpriced, overpriced, or properly priced. Company $1 Discount Store Everything $5 (Click to select) (Click to select)
Use the graph below to answer the following two questions Security Market Line (SML) 20% 16% 12% 8% Required Return 4% Risk-Free Rate 096 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Relative Risk as Measured by Beta 19) A stock plotted in this graphical space that lies ABOVE the solid line would be considered: a. Overpriced b. Underpriced c. Accurately Priced d. Not enough information to answer this questiorn 20) The slope of the solid line...
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%) 6.8 -0.6 4.7 Stock Market (61) 1.0 0.9 0.3 Factor Risk Exposures Interest Rate Yield Spread (62) (63) -1.2 -0.4 0.2 1.4 1.3 Calculate the expected return for each of the stocks shown in the table above. Assume rf=3.4%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return P Expected return P2 Expected return P3
Problem, 6· (20 points total) Assume that the risk-free rate is 3% and the expected rate of return on the market portfolio s i 0%. (a) (5 points total) Graphically show what the SML (Security Market Line) looks like (1 point). Indicate where the risk-free asset and the market portfolio lie along the SML (1 point each). You can create this graph by hand or by computer. What is the slope of the SML? (1 point) What is the y-intercept...
The risk-free rate of return is 3.7 percent. The risk premium on the market portfolio is 8.8 percent. The table below has information on 5 stocks. Can you figure out which one of them is correctly priced (.e., correctly compensates investors for the amount of systematic risk they are facing)? Stock Beta | #1 #2 Expected Return 9.47% 12.03 14.44 15.80 18.37 0.64 0.97 1.22 1.37 1.68 #3 #4 Multiple Choice O O O Multiple Choice Ο Ο Ο Ο...
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