Ra = Rrf + ( B a X R p) | |||||||||
Ra = Expected return on a security | |||||||||
Rrf = Risk-free rate | |||||||||
Ba = Beta of the security | |||||||||
Rm = Expected return on market | |||||||||
Rp = Risk Premiun | |||||||||
Stock | Rrf % | "+" | "( | Beta | "X" | Rp) | |||
Stock = R a = | 2.25% | "+" | "( | 0.60 | "X" | 5.50% | )" | ||
Stock | Rrf % | "+" | Beta X Rp | ||||||
Stock = R a = | 2.25% | "+" | 3.30% | ||||||
Stock = R a = | 5.55% | ||||||||
Answer = Option 1 = 5.55% | |||||||||
Cooley Company's stock has a beta of 0.60, the risk-free rate is 2.25%, and the market risk premium is 5.50%. What...
ABC Company's stock has a beta of 1.95, the risk-free rate is 2.25%, and the market risk premium is 6.75%. What is ABC's required rate of return using CAPM? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box. Ripken Iron Works believes the following probability distribution exists for its stock. What is the standard deviation of...
Question 1: Cooley Company's stock has a beta (b) of 1.28, the risk-free rate (rRF) is 1.25%, and the market risk premium (RPM) is 5.50%. a. What does the beta measure? Give a short answer in 1 sentence. b. What is market risk premium? Give a short answer in 1 sentence. c. Calculate the firm's required rate of return? Show the step-by-step calculation and circle your answer. (Hint: Required return = rRF + b(RPM)) Question 2: Consider the following information...
A stock has a required return of 9%, the risk-free rate is 3.5%, and the market risk premium is 4%. What is the stock's beta? Round your answer to two decimal places. ______ If the market risk premium increased to 6%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. If the stock's beta is equal to...
Question 1: Cooley Company's stock has a beta (b) of 1.28, the risk-free rate (rRF) is 1.25%, and the market risk premium (RPM) is 5.50%. a. What does the beta measure? Give a short answer in 1 sentence. b. What is market risk premium? Give a short answer in 1 sentence. c. Calculate the firm's required rate of return? Show the step-by-step calculation and circle your answer. (Hint: Required return = rRF + b(RPM)) Question 2: Consider the following information...
Lagard's stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 1.5%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)
Problem 12-12 Relative Valuation (LO3, CFA2) Stock Y has a beta of 1.00 and an expected return of 13.05 percent. Stock Z has a beta of 0.60 and an expected return of 8 percent. If the risk-free rate is 5.0 percent and the market risk premium is 7.2 percent, what are the reward-to-risk ratios of Y and Z? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Reward-to-Risk Ratio Stock Y Stock Z...
Moerdyk Company's stock has a beta of 1.5, the risk-free rate (rRFR) is 4.50%, and the market risk premium (rM- rRFR) is 7.50%. What is the firm's required rate of return? 11.36% 15.75% 15.95% 14.50% 13.55%
Magee Company's stock has a beta of 1.20, the risk-free rate is 4.50%, and the market risk premium is 5.00% What is Magee's required return? a. 10.50% b. 11.25%
A stock has a required return of 14%, the risk-free rate is 3%, and the market risk premium is 6%. What is the stock's beta? Round your answer to two decimal places. If the market risk premium increased to 8%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. If the stock's beta is equal to 1.0,...
A stock has a required return of 14%, the risk-free rate is 5.5%, and the market risk premium is 4%. What is the stock's beta? Round your answer to two decimal places. If the market risk premium increased to 7%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged. Do not round intermediate calculations. Round your answer to two decimal places. If the stock's beta is equal to 1.0,...