Capital Assets Pricing Model (CAPM)(20 points)4. You have landed an interview with Gold & Silver Bank, and they are asking you to calculate theexpected return on a series of assets they are evaluating. They provide the data below and have sentyou a few additional questions.Risk-free rate5.26%StockExpected ReturnBetasALMM45.32%9.2AIR34.10%5.1BLUE61.20%3.787.20%4.5MONGiven the expected return on an asset, E(Ri), is equal to the risk-free rate, Rf, plus the risk premium.-E(R)=R₂+ [E(RM) – Rƒ] × BiWhat is each stock's expected return, E(Ri)? Provide the result as x.xx%.

Let's calculate the expected return for each stock: 1. For ALMM:E(RALMM)=5.26%+(3.94%…

Answered: Capital Assets Pricing Model (CAPM) (20…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

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Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here O in order to copy the contents of the data table below into a spreadsheet.) ne Risk-free Market rate, R return, rm Beta, b nts 4% 0.7 1% The required return for the asset is %. (Round to two decimal places.) eТext edia Librai ial Calculat er Resource Enter your answer in the answer box and then click Check Answer. Check Answer mic Study ules Clear All All parts showing 10: DExercise(14); ools > This course (Introduction to Finance (FIN-101-D02) Distance Spring 2021) is hased on Zutter/Smart Princinles of Managerial Finance Rrief Re 4/13 O Type here to search insert
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk-free rate, RF 1% The required return for the asset is %. (Round to two decimal places.) C Market return, m 5% Beta, b 0.5
(Capital asset pricing model) Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent and the expected return for the market is 9 percent. Stock Beta K 1.06 G 1.28 B 0.78 U 0.93 (Click on the icon in order to copy its contents into a spreadsheet.) a. Using the CAPM, what rates of return should Grace require for each individual security? b. How would your evaluation of the expected rates of return for Grace change if the risk-free rate were to rise to 4 percent and the market risk premium were to be only 6 percent? c. Which market risk premium scenario (from part a or b) best fits a recessionary environment? A period of economic expansion? Explain your response. Question content area bottom Part 1 a. The expected rate of return for security K, which has a beta of 1.06, is enter your response here%. (Round to two decimal places.) Part 2 The expected rate…
Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk-free rate, RF 5% Market return, m 10% ****** The required return for the asset is%. (Round to two decimal places.) Beta, b 0.6
3. You have worked with your client and put together an investment portfolio based on the client's preferences for risk. The portfolio will be divided among several asset classes defined below. Asset Class Allocation Expected Return Standard Deviation of Returns 10 Year T-Bonds 37% 4.13% 0.00% International Bonds (Private Corporate) 12% 6.32% 34.23% Rusell 2000 ETF 41% 6.70% 12.32% FTSE 100 ETF 10% 32.10% 21.30% 100% a. What is the expected return for this portfolio? Provide the result as x.xx%. b. What is the expected return for the portfolio if you decide not to invest in treasury bonds? Provide the result as x.xx%. c. What asset class would you eliminate to maximize expected return? Explain why.
QUESTIONS: 1) Assuming that the risk-free rate of return is currently 3,2%, the market risk premium is 6% whereas the beta of HelloFresh SH. stock is 1.8, compute the required rate of return using CAPM. 2) Compute the value of each investment based on your required rate of return and interpret the results comparing with the market values. 3) Which investment would you select? Explain why using appropriate financial jargon (language). 4) Assume HelloFresh SH's CFO Mr. Christian Gaertner expects an earnings upturn resulting increase in growth (rate) of 1%. How does this affect your answers to Question 2 and 3? 5) AACSB Critical Thinking Questions: A) Companies pay rating agencies such as Moody's and S&P to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. Why do you think they do it? (Textbook page: 198) B) What are the difficulties in using the PE ratio to value stock?…
PLEASE ANSWER ALL THE QUESTIONS Question 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nine line items. Question 2 Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what does it show? Identify undervalued/overvalued investments from the graph Question 3 From the information generated in the previous two questions; a) Identify two investment alternatives that can be combined in a portfolio. Assume a 50-50 investment allocation in each investment alternative. b) Compute the expected return of the portfolio thus formed. c) Compute the portfolio’s beta. Is the portfolio aggressive or defensive?
Course: FinanceAs a great investor, you are interested in 3 assets to invest: A, B and C. A financial advisor tells you that the returns on the assets are independent of each other, and you are given the following data: Asset A B C E(Ri) 0.05 0.035 0.06 Variance 0.0015 0 0.008 You have not yet analyzed what your degree of risk aversion (A) is, but you know that your utility function behaves as follows: U[ E(Rp)] = E(Rp) - 0.5 * A * Variance. (See attached image for a better understanding) You are asked to:(a) Find the optimal portfolio with these 3 assets {called wA, wB and wC}.b) Calculate the expected return and risk of the optimal portfolio for the following degrees of risk aversion (A):(i) A = 5(ii) A = 10(iii) A = 16 Please ASAP
The payoff table below indicates the returns (in RM thousands) of investments in stock, bond and fixed deposit under different economic situations. Type of Investment Stock Bond Fixed Deposit Table 1 Economic Situation Good 150 50 45 Stable 60 40 45 Poor -30 36 45 The probabilities of good, stable and poor economy are 0.3, 0.5 and 0.2, respectively. What is the best investment based on the expected monetary value criterion? Draw a decision tree.
For each of the cases shown in the following table, use the capital asset pricing model (CAPM) to find the required return and explain your answer. Case Risk-free rate Market return Beta (%) (%) 8 A 5 1.3 В 8. 13 0.9 C 9 12 -0.2 D 10 15 1.0 E 10 0.6
(Capital asset pricing model) Anita, Inc. is considering the following investments. The current rate on Treasury bills is 6 percent, and the expected return for the market is 14 percent. Using the CAPM, what rates of return should Anita require for each individual security? Stock H T P W (Click on the icon in order to copy its contents into a spreadsheet.) Beta 0.92 1.63 0.87 1.17 a. The expected rate of return for security H, which has a beta of 0.92, is%. (Round to two decimal places.)
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