Your analysis indicates that the stock of Dewey Cheatham and Howe Industries will return 10% next...
- Your analysis indicates that the stock of Dewey Cheatham and Howe Industries will return 10% next year. The stock has a beta of 1.5, the risk free rate is 4% and the expected market risk premium is 5%. Is the stock over-valued, undervalued, or fairly valued? Explain.
Homework Answers
As per CAPM required return is equal to:
=Rf+beta(Risk premium)
=4%+1.5*(5%)
=11.5%
CAPM required a return of 11.5% whereas the expected return is 10%, meaning the stock is overvalued and should not be bought.
Add Answer to:
Your analysis indicates that the stock of Dewey Cheatham and
Howe Industries will return 10% next...
Over the past year you held a stock that generated a return of 15 percent. The...
Over the past year you held a stock that generated a return of 15 percent. The stock's beta was 1.5, the risk-free rate was 3 percent and the market risk premium was 7 percent. b. Was this stock overpriced, fairly priced or under priced. Explain. (5 pts)
1. Calculate the risk appropriate level of return 2. Determine whether the stock is undervalued or...
1. Calculate the risk appropriate level of return 2. Determine whether the stock is undervalued or overvalued. Undervalued/Overvalued Stock - Excel Sign In FILE НОМЕ PAGE LAYOUT FORMULAS REVIEW INSERT DATA VIEW 11 Calibri A A Cell Cells Editing в IU- Paste A Alignment Number Conditional Format Formatting as Table Styles Clipboard Styles Font A1 fox В E G A manager believes his firm will earn a 16.50 percent return next year. His firm has a beta of 64, the...
1/3). Each stock is described in the Wilson holds a portfolio that invests equally in three...
1/3). Each stock is described in the Wilson holds a portfolio that invests equally in three stocks (WA = WB Wc following table: Stock Beta Standard Deviation Expected Return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% An analyst has used market and firm-specific information to generate expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. You've also determined that the risk-free rate (TRF) is...
VITnOT CT 3mTA 10-10 Company Risk Premium Paycheck, Inc., has a beta of 0.94. If the mar- ket return is expected t...
VITnOT CT 3mTA 10-10 Company Risk Premium Paycheck, Inc., has a beta of 0.94. If the mar- ket return is expected to be 11 percent and the risk-free rate is 3 percent, what is Paycheck's risk premium? (LG10-3) 10-11 Portfolio Beta You have a nortfolio with a beta of 1.35. What will be the 10-20 Undervalued/Overvalued Stock A manager believes his firm will earn a 14 percent return next year. His firm has a beta of 1.2, the expected return...
11. Assume that the Risk Free rate is 5% and the Expected Return on the market...
11. Assume that the Risk Free rate is 5% and the Expected Return on the market is 10%. Show if these stocks are under, over, or fairly valued. Illustrate it in a chart with the SML and the expected returns of the stocks. CAPM returnasseti RiskFree + [E(Rmarket)- Risk Free] Basset i Security САРМ Over/Under E(Return) Beta Return |Valued? Stock W Stock Y Stock Z 0.035 0.85 1.2 0.095 0.12 1.1 Show (and explain) your results in the following chart....
The stock of United Industries has a beta a 2.26 and an expected return of 12.0. The risk-free rate of return is 4 perce...
The stock of United Industries has a beta a 2.26 and an expected return of 12.0. The risk-free rate of return is 4 percent. What is the expected return on the market? options: 7.66% 8.69% 8.24% 8.89% 7.54% The expected return on JK stock is 14.00 percent while the expected return on the market is 11.00 percent. The beta of JK stock is 1.5. What is the risk-free rate of return? options: 5.00 percent 3.90 percent 4.90 percent 4.31 percent...
Stock Y has a beta of 1.30 and an expected return of 13.5 percent. Stock Z...
Stock Y has a beta of 1.30 and an expected return of 13.5 percent. Stock Z has a beta of .75 and an expected return of 10.6 percent. If the risk-free rate is 4.75 percent and the market risk premium is 7.25 percent, are these stocks overvalued or undervalued? stock Y = ______ stock Z = ______
SHOW THE FORMULAS ? X Undervalued/Overvalued Stock - Excel FORMULAS DATA REVIEW - Sign In PAGE...
SHOW THE FORMULAS
? X Undervalued/Overvalued Stock - Excel FORMULAS DATA REVIEW - Sign In PAGE LAYOUT VIEW OSSA FILE HOME INSERT Calibri Paste B I U- Clipboard Font E2 - 11 - A A -A Alignment Number Cells Editing Conditional Format as Cell Formatting Table - Styles Styles A B A manager believes his firm will earn a 16.50 percent return next year. His firm has a beta of .64, the expected return on the market is 14.40 percent,...
John Wilson Markowitz Efficient frontier Question
Wilson is now evaluating the expected performance of two common stocks ,Furhman Labs Inc and Garten Testing Inc. He has gathered the following information: The risk free rate is 5% The expected return on the market portfolio is 11.5% The beta of Furhman stock is 1.5The Beta of Garten Stock is 0.8Based on his analysis, Wilson's forecast of the returns on the two stocks are 13.25% for Furhman stock and 11.25% for Garten Stock.1) Calculate the Required rate of return...
The common stock of United Industries has a beta of 1.34 and an expected return of...
The common stock of United Industries has a beta of 1.34 and an expected return of 14.29 percent. The risk-free rate of return is 3.7 percent. a. What is the market risk premium? 7.90% b. What is the expected return on the market? 11.60% Please check the answers and show all work typed out. No excel or grid style please as I am on mobile.
Over the past year you held a stock that generated a return of 15 percent. The stock's beta was 1.5, the risk-free rate was 3 percent and the market risk premium was 7 percent. b. Was this stock overpriced, fairly priced or under priced. Explain. (5 pts)
1. Calculate the risk appropriate level of return 2. Determine whether the stock is undervalued or overvalued. Undervalued/Overvalued Stock - Excel Sign In FILE НОМЕ PAGE LAYOUT FORMULAS REVIEW INSERT DATA VIEW 11 Calibri A A Cell Cells Editing в IU- Paste A Alignment Number Conditional Format Formatting as Table Styles Clipboard Styles Font A1 fox В E G A manager believes his firm will earn a 16.50 percent return next year. His firm has a beta of 64, the...
1/3). Each stock is described in the Wilson holds a portfolio that invests equally in three stocks (WA = WB Wc following table: Stock Beta Standard Deviation Expected Return A 0.5 23% 7.5% B 1.0 38% 12.0% C 2.0 45% 14.0% An analyst has used market and firm-specific information to generate expected return estimates for each stock. The analyst's expected return estimates may or may not equal the stocks' required returns. You've also determined that the risk-free rate (TRF) is...
VITnOT CT 3mTA 10-10 Company Risk Premium Paycheck, Inc., has a beta of 0.94. If the mar- ket return is expected to be 11 percent and the risk-free rate is 3 percent, what is Paycheck's risk premium? (LG10-3) 10-11 Portfolio Beta You have a nortfolio with a beta of 1.35. What will be the 10-20 Undervalued/Overvalued Stock A manager believes his firm will earn a 14 percent return next year. His firm has a beta of 1.2, the expected return...
11. Assume that the Risk Free rate is 5% and the Expected Return on the market is 10%. Show if these stocks are under, over, or fairly valued. Illustrate it in a chart with the SML and the expected returns of the stocks. CAPM returnasseti RiskFree + [E(Rmarket)- Risk Free] Basset i Security САРМ Over/Under E(Return) Beta Return |Valued? Stock W Stock Y Stock Z 0.035 0.85 1.2 0.095 0.12 1.1 Show (and explain) your results in the following chart....
SHOW THE FORMULAS
? X Undervalued/Overvalued Stock - Excel FORMULAS DATA REVIEW - Sign In PAGE LAYOUT VIEW OSSA FILE HOME INSERT Calibri Paste B I U- Clipboard Font E2 - 11 - A A -A Alignment Number Cells Editing Conditional Format as Cell Formatting Table - Styles Styles A B A manager believes his firm will earn a 16.50 percent return next year. His firm has a beta of .64, the expected return on the market is 14.40 percent,...
Most questions answered within 3 hours.
-
4) In a polypeptide, which bond cannot rotate because of its
partial double bond character?
The...
asked 11 minutes ago -
Assume that in the short run L = 1,000 and K = 100. 1. What is...
asked 5 minutes ago -
At a given temperature, 2.06 atm of H2 and 3.7 atm of Br2 are
mixed and...
asked 4 minutes ago -
Sodium reacts with Hydrochloric acid to form sodium chloride and
hydrogen gas. 2Na(s)+ 2 HCl(aq)-> 2...
asked 11 minutes ago -
The following circuits (1 & 2) are combined to form a
series-parallel circuit and resulting circuit...
asked 19 minutes ago -
Feynman's use of path integrals can make some of the transition
from quantum scale to real...
asked 18 minutes ago -
Pb(NO3)2 (aq) + 2 KCl (aq) PbCl2 (s) + 2 KNO3 (aq)
If 54.5mL of 3.82M...
asked 19 minutes ago -
Razeghi (2008) states "In order to succeed at innovation, do not
focus on being creative; rather...
asked 25 minutes ago -
How much heat is required at constant pressure to melt 1 mole of
ice at -25...
asked 28 minutes ago -
Suppose N is a discrete random variable defined by probability
distribution:
n
Pr(N = n)
10...
asked 29 minutes ago -
why are special-interest travelers becoming more important to
tourism service suppliers?
asked 33 minutes ago -
A 50.0-kg child takes a ride on a Ferris wheel that rotates four
times each minute...
asked 55 minutes ago