e. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium is 5%. What is the expected return on the market? Now use the SML equation to calculate the two companies' required returns. Market risk premium (RPM) = 5.000% Risk-free rate = 6.040% Expected return on market = Risk-free rate + Market risk premium = 6.040% + 5.000% = 11.040% Required return = Risk-free rate + Market Risk Premium x Beta Goodman: Required return = = Landry: Required return = x =
Answer:
Required Return for Good man= Rf + Beta* MRP = 6.04% + 1.54*(5%) = 13.74%
Required return for Landry = 6.04% - 0.56*5% = 3.24%
Expected Return on Market = Risk Premium + Risk free rate = 5% + 6.04% = 11.04%
e. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the market risk premium...
Required return on Stock = Risk-free return + (Market risk premium)(Stock's beta) to compensate the investor for risk. If a stock's expected return plots below the SM If a stock's expected return plots on or above the SML, then the stock's return is -Select- the stock's return is -Select- to compensate the investor for risk. The SML line can change due to expected inflation and risk aversion. If inflation changes, then the SML plotted on a graph will shift up...
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Ch 08: Assignment-Risk and Rates of Return 8. Changes to the security market line 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) Return on HC's Stock RISK (Beta) Value CAPM Elements Risk-free rate (rry) Market risk premium (RPM) Value CAPM Elements Risk free rate (TRE) Market risk premium (RPM) Happy...
Assume the risk-free rate is 5% and that the market risk premium is 7%. What is the required rate of return with a beta of 1.25? O 11.25% 17.75% 13.759 15.00
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