Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) a-2. Is the stock over- or underpriced?
Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm- R;) is 89%. If…
A: Financial management consists of directing, planning, organizing and controlling of financial…
Q: Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free…
A: Please see the white board for the expression for standard deviation of a portfolio. The symbols…
Q: Which of the following statements is TRUE? O A. If the risk-free rate is 1.5% and the market risk…
A: Capital Asset Pricing Model: According to the Capital Asset Pricing Model (CAPM), the link between…
Q: A stock's returns have the following distribution: Demand for the Probability of This Demand…
A: Given information: Risk free rate is 3% Calculation of expected return, standard deviation,…
Q: Suppose Stock A has ß = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate…
A: The Capital Asset Pricing Model, Expected return will be calculated as under Ke = Rf + β (Rm -…
Q: Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the…
A: CAPM is a financial model which shows the relation between risk and expected return of the…
Q: Assume that West Corp shares returns required in the market by investors are a function of two…
A: The arbitrage pricing model is an exoplanetary model which tries to explain the volatility in stock…
Q: Assume that the risk-free rate of return is 46 and the market risk premium (Le, Rm-Re) is 8%. If use…
A: Financial management consists of directing, planning, organizing and controlling of financial…
Q: Stocks A and B have the following data. The market risk premium is 6.0% and the risk-free rate is…
A: The dividend yield is the quantitative measure that depicts the relationship between the annual…
Q: EXPECTED RETURN A stock’s returns have the following distribution: Demand For the…
A: Given information: Demand For the Company’s Products Probability of this Demand Occurring Rate…
Q: A stock's returns have the following distribution: Demand for the Probability of this Rate of Return…
A:
Q: Assume that the risk-free rate of return is 4% and the market risk premium (Le., Rm- R:) is 896. If…
A: Financial management consists of directing, planning, organizing and controlling of financial…
Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…
A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…
Q: A stock's returns have the following distribution: Demand for the Probability of This Rate of Return…
A: Stock’s expected return is the return which is expected to be generated from the project. This…
Q: Consider the following information about Stocks X and Y: State of Economy Probability of State Stock…
A: Given: Economy Probability (P) Stock X Stock Y Recession 0.15 0.11 -0.25 Steady 0.55 0.18…
Q: What is the standard deviation of the returns on a stock given the following information? Could you…
A: For calculating the standard deviation using the following formula. SD = ∈[ P(GR-ER)2] Where P =…
Q: Assume the expected return on the market is 7 percent and the risk-free rate is 4 percent. a. What…
A: In the given question we have two parts: In Part (A) we need to compute expected return for a stock…
Q: Assume that the CAPM is a good description of stock price returns. The expected market risk premium…
A: Expected return of a stock Using CAPM, the expected return of a stock is calculated. With market…
Q: Let Ps be the current market price of a share of common stock of Company X. Let P; be the…
A: Efficient Market Hypothesis states that the prices of shares in the market reflect all available…
Q: A stock's returns have the following distribution: Demand for the Probability of this Rate of Return…
A: Risk-free rate = 2% Need to compute 1. Stocks expected return 2. Standard deviation 3.…
Q: Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest…
A: The Arbitrage Pricing Theory (APT) model is the asset pricing model that is used to determine the…
Q: The required rate of return on the Daisy Corporationʹs common stock is 11%, the current real rate of…
A: The expected return is the minimum required rate of return which an investor required from the…
Q: The particulars are as follows; the expected return of the market is 12 per cent and the risk free…
A: The arbitrage pricing model is an important model of the pricing model of portfolio management. This…
Q: assume that expected return of the stock A in Rachel's portfolio is 13.6% this year.The risk premium…
A:
Q: Suppose the current risk-free rate of return is 3.5%, and the expected market return is 9%. Fashion…
A: In the following question we require to calculate the firm's cost of retained earnings using CAPM…
Q: 1. Risk free rate represents: a. The market rate of return b. The rate provided by long term…
A: 1. Risk free rate is the rate which is expected by investor with no risks.
Q: Consider a world with only two risky assets, A and B, and a risk-free asset. Stock A has 200 shares…
A: There are two risky assets in the portfolio, A and B and a risk-free asset. The returns of the…
Q: Suppose you observe the following situation: State of Economy…
A: Given:
Q: USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Stock Rit Rmt ai Beta C 12 10 0 0.8…
A: Abnormal return = Return in excess of market return in the given period = Rit - RmtFor stock C, the…
Q: Suppose you estimate that stock A has a volatility of 32% and a beta of 1.42, whereas stock B has a…
A: Total risk of the stock can be calculated by squaring the values of the stock volatility. It can…
Q: Calculate the expected (required) return for each of the following stocks when the risk-free rate is…
A: With the given information, we can determine the expected return as:
Q: Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - R) is 8%. If…
A: Given: Risk free rate of return =4%Market risk premium =8%Beta =1.28
Q: Consider the following simplified APT model: Factor…
A: a) Expected return = Risk free Rate + (Beta Market * Market Risk premium factor) + ( Beta Interest…
Q: Below is a table of probabilities and expected returns for 2 securities under 3 possible scenarios:…
A: Expected rate of return is the profit or loss on the investor that is assumed to be anticipated by…
Q: Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the…
A: CAPM is the relationship between systematic risk and returns for assets. This concept is used for…
Q: Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest…
A: Arbitrage Pricing Theory The concept behind the multi-factor asset pricing model known as arbitrage…
Q: Spider Corp has a beta of 1.7. The risk-free rate is 1.6% and the market risk premium is 5.2% .(Note…
A: Following details are given in the question regarding Spider Corp: Beta = 1.7 Risk free rate = 1.6%…
Q: Consider the following information about Stocks I and II: Probability of State of Economy State of…
A: An expected return is the return of the specific stock that is the chances of received at the end of…
Q: Assume the risk-free rate is 3% and the market return is 10%. Stock X Stock Y Stock Z Beta 0.65 0.90…
A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
Q: Given the following information, determine the beta coefficient for Stock L that is consistent with…
A: Given, Expected return for Stock L (E(R))= 10.5% Nominal Risk Free Rate (Rf) = 3.5% Expected Return…
Q: equired: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%.…
A: This post has three questions. Questions 1 and 3 have been answered below.
Q: Suppose that the market can be described by the following three sources of systematic risk with…
A: Equilibrium rate refers to the long-term exchange rate that is equal to the purchasing power…
Q: Assume that the risk-free rate of return is 4% and the market risk premium (ie, Rm - Rp) is 8%. If…
A: Financial statements are statements which states the business activities performed by the company .…
Q: Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest…
A: Expected return on stock =Risk free rate +risk premium x risk exposure factor Expected return on…
Q: The risk premium is % on stock C given the following information: risk-free rate = 4%, market return…
A: Risk premium = [ Market return - Risk free rate ] * Beta
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.
Factor | Risk Premium | |
Industrial production (I) | 8 | % |
Interest rates (R) | 4 | % |
Consumer confidence (C) | 6 | % |
The return on a particular stock is generated according to the following equation:
r = 16% + 1.6I + 0.8R + 1.30C + e
a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)
a-2. Is the stock over- or underpriced?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Risk Premium Factor Industrial production (I) Interest rates (R) Consumer confidence (C) Required: 8% 4 7 The return on a particular stock is generated according to the following equation: r = 17% +0.9/+0.5R+0.70 C+ e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 3%. Note: Do not round intermediate calculations. Round your answer to 1 decimal place. a-2. Is the stock over- or underpriced? a-1. Equilibrium rate of return a-2 Is the stock over- or underpriced? %Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 6 % Interest rates (R) 2 Consumer confidence (C) 4 The return on a particular stock is generated according to the following equation: r = 15% + 1.0I + 0.5R + 0.75C + ea-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.
- Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) = ???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??) =???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)Question 2. Foreign exchange marketsStatoil, the national…How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
- c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is found to be half of the required return (Rs) on stock B. The risk-free rate (R:) is one-fourth of the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (Ba) to beta of B (B).Consider the following simplified APT model: Factor Market Expected Risk Premium (%) Interest rate Yield spread 6.2 -0.8 4.8 Factor Risk Exposures Market ( Interest Rate ( Yield Spread ( Stock b₁ ) P 1.0 p2 1.0 p3 0.3 b2 ) -1.4 0 2.1 b3 ) -0.6 0.1 0.6 = : 3.8%. Calculate the expected return for each of the stocks shown in the table above. Assume rf Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Expected return P 7.80% Expected return P2 10.38% Expected return P3 %Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock (b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…
- Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?A stock's risk premium is equal to the: expected market risk premium times beta. expected market risk premium multiplied by beta plus the risk-free return. Risk-free return plus expected market return. expected market return times beta.Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).