Homework Answers
| Question 5: | |
| More than one will occur | |
| Question 6: | |
| Expected return on the stock = Risk free rate [Yield of Treasury Bills]+Beta*(Estimated market return-here S&P-Risk free rate) = 0.0014+0.85*(0.105-0.0014) = | 8.95% |
| Answer: | |
| Greater than or equal to 8% but less than 9%. |
Add Answer to:
Question 5 1 pts Investors expect deflation to occur (i.e., you expect a negative rate of...
Multiple parts, please review each! Quick MC questions, I believe they are all correct but would...
Multiple parts, please review each! Quick MC questions, I
believe they are all correct but would just like to make sure I am
doing them correctly.
You are considering buying shares of Ember Incorporated to add to your portfolio. Your broker tells you that Ember's beta is 1.28 and that the current T-Bill rate is 2.5%. She also estimates that the return on the S&P500 index is 10%. Given this information, calculate the market risk premium". 10% 7.5% 9.6% 12.1%...
According to the CAPM, which of the following sentences is incorrect? A. All securities' expected returns...
According to the CAPM, which of the following sentences is incorrect? A. All securities' expected returns must lie on the capital market line (CML). B. All securities' expected returns must be on the security market line (SML). C. The slope of the security market line (SML) must be the market risk premium. D. The slope of the capital market line (CML) is the Sharpe Ratio of the market portfolio. E. A security's beta coefficient will be negative if its return...
1) A project has a market beta of 1.7. The risk-free rate is 3%, and the...
1) A project has a market beta of 1.7. The risk-free rate is 3%, and the equity premium is 5%. Your firm should undertake this project only if it returns greater or equal to 8% greater or equal to 35% greater or equal to 8.3333% greater or equal to 11.5% 2) A zero-coupon bond has a beta of 0.3 and promises to pay $1000 next year with a probability of 95%. If the bond defaults, it will pay nothing. One...
The following graph plots the current security market line (SML) and indicates the return that investors...
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 Return on HC's Stock 8.0 4.0 0.0 0.5 1.0 1.5 2.0 RISK (Betal CAPM Elements Value Risk-free rate (FRF) 4.0% Market risk premium (RPM) 4.4% Happy Corp. stock's beta 2.2% Required rate of return on 7.6% Happy Corp. stock...
PLEASE EXPLAIN WHY ANSWER IS TRUE OR FALSE: "Risk aversion" implies that investors require higher expected...
PLEASE EXPLAIN WHY ANSWER IS TRUE OR FALSE: "Risk aversion" implies that investors require higher expected returns on riskier than on less risky securities. a. True b. False When adding a randomly chosen new stock to an existing portfolio, the higher (or more positive) the degree of correlation between the new stock and stocks already in the portfolio, the less the additional stock will reduce the portfolio's risk. a. True b. False An individual stock's diversifiable risk, which is measured...
The following graph plots the current security market line (SML) and indicates the return that investors...
The following graph plots the current security market line (SML)
and indicates the return that investors require from holding stock
from Happy Corp. (HC). Based on the graph, complete the table that
follows:
Return on HC's Stock - Coordinates (1.2, 10.4)
Blue line - Slope is 4.5, Y-Intercept is 5.
CAPM Elements
Value
Risk-free rate (rRFrRF)
(10.4% / 2.8% / 5% / 5.5%)
Market risk premium (RPMRPM)
(4.5% / 5.9% / 8.1% / 3.4%)
Happy Corp. stock’s beta
(1.9 /...
Question 1 (10 Marks) Tilda Co. stock is currently priced at $48. You expect its price...
Question 1 (10 Marks) Tilda Co. stock is currently priced at $48. You expect its price in one year to be $54 and do not expect any dividends to be paid. The risk free rate is 5%, and the overall market is expected to return 10%. a) What will be the current price of Tilda Co. if the expected future price remains the same but its covariance with the market doubles? (4 Marks) b) Assume that the actual price is...
5. Which of the following statements is CORRECT? a. The CAPM has been thoroughly tested, and...
5. Which of the following statements is CORRECT? a. The CAPM has been thoroughly tested, and the theory has been confirmed beyond any reasonable doubt. b. A graph of the SML as applied to individual stocks would show on beta the vertical axis and required rates of return on the horizontal axis. c. If two "normal" or "typical" stocks were combined to form a 2-stock portfolio, the portfolio's expected return would be a weighted average of...
Tilda Co. stock is currently priced at $48. You expect its price in one year to...
Tilda Co. stock is currently priced at $48. You expect its price in one year to be $54 and do not expect any dividends to be paid. The risk free rate is 5%, and the overall market is expected to return 10% a) What will be the current price of Tilda Co. if the expected future price remains the same but its covariance with the market doubles? (4 Marks) b) Assume that the actual price is less than what you...
The following graph plots the current security market line (SML) and indicates the return that investors...
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent] 20.0 16.0 12.0 Return on HC's Stock 4.0 0.5 1.5 2.0 RISK (Beta) 0.0 1.0 CAPM Elements Value Risk-free rate (rRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation...
Multiple parts, please review each! Quick MC questions, I
believe they are all correct but would just like to make sure I am
doing them correctly.
You are considering buying shares of Ember Incorporated to add to your portfolio. Your broker tells you that Ember's beta is 1.28 and that the current T-Bill rate is 2.5%. She also estimates that the return on the S&P500 index is 10%. Given this information, calculate the market risk premium". 10% 7.5% 9.6% 12.1%...
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 Return on HC's Stock 8.0 4.0 0.0 0.5 1.0 1.5 2.0 RISK (Betal CAPM Elements Value Risk-free rate (FRF) 4.0% Market risk premium (RPM) 4.4% Happy Corp. stock's beta 2.2% Required rate of return on 7.6% Happy Corp. stock...
The following graph plots the current security market line (SML)
and indicates the return that investors require from holding stock
from Happy Corp. (HC). Based on the graph, complete the table that
follows:
Return on HC's Stock - Coordinates (1.2, 10.4)
Blue line - Slope is 4.5, Y-Intercept is 5.
CAPM Elements
Value
Risk-free rate (rRFrRF)
(10.4% / 2.8% / 5% / 5.5%)
Market risk premium (RPMRPM)
(4.5% / 5.9% / 8.1% / 3.4%)
Happy Corp. stock’s beta
(1.9 /...
Question 1 (10 Marks) Tilda Co. stock is currently priced at $48. You expect its price in one year to be $54 and do not expect any dividends to be paid. The risk free rate is 5%, and the overall market is expected to return 10%. a) What will be the current price of Tilda Co. if the expected future price remains the same but its covariance with the market doubles? (4 Marks) b) Assume that the actual price is...
Tilda Co. stock is currently priced at $48. You expect its price in one year to be $54 and do not expect any dividends to be paid. The risk free rate is 5%, and the overall market is expected to return 10% a) What will be the current price of Tilda Co. if the expected future price remains the same but its covariance with the market doubles? (4 Marks) b) Assume that the actual price is less than what you...
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. REQUIRED RATE OF RETURN (Percent] 20.0 16.0 12.0 Return on HC's Stock 4.0 0.5 1.5 2.0 RISK (Beta) 0.0 1.0 CAPM Elements Value Risk-free rate (rRF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock An analyst believes that inflation...
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