3. Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate (7.00%), and the required return on the United Fund (15.00%) are shown below. Based on this information, what is the required return on the market, m? Year 2011 2012 2013 2014 2015 Market -9% 11% 15% 5% -1% UF -14% 16% 22% 7% -2%

3. Assume that the market is in equilibrium and that stock betas can be estimated with historical data. The returns on the market, the returns on United Fund (UF), the risk-free rate (7.00%), and the required return on the United Fund (15.00%) are shown below. Based on this information, what is the required return on the market, m? Year 2011 2012 2013 2014 2015 Market -9% 11% 15% 5% -1% UF -14% 16% 22% 7% -2%

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

Problem 1PS

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. E(RI) = .15(.11) + .55(.18) + .30(.08) Using CAPM to determine the expected rate of return for risky assets, consider the following example stocks, assuming that you have already compute the betas Stock Beta WND 0.80 STA 1.35 CTE 1.15 DUY 1.20 EVN -0.20 Stock WND the economy’s RFR to be 6 percent (0.06) and the expected return on the market portfolio (E(RM)) to be 8 percent (0.08) Stock STA, the economy’s RFR to be 5percent (0.05) and the expected return on the market portfolio (E(RM)) to be 7 percent(0.07) Assume that all the other stocks is as follows since we expect the economy’s RFR to be 5 percent (0.05) and the expected return on the market portfolio (E(RM)) to be 9 percent (0.09),
Excel Online Structured Activity: Historical Return: Expected and Required Rates of Return You have observed the following returns over time: Year Stock X Stock Y Market 2011 14 % 12 % 10 % 2012 20 7 9 2013 -13 -2 -13 2014 3 1 2 2015 19 9 12 Assume that the risk-free rate is 4% and the market risk premium is 6%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet What is the beta of Stock X? Do not round intermediate calculations. Round your answer to two decimal places. fill in the blank 2 What is the beta of Stock Y? Do not round intermediate calculations. Round your answer to two decimal places. fill in the blank 3 What is the required rate of return on Stock X? Do not round intermediate calculations. Round your answer to one decimal place. fill in the blank 4 % What is the required rate of return on Stock…
A stock has the following four factors which were used to explain the return on Stock YGF and the level of sensitivity of each factor and the risk premium associated. GDP growth: β= 0.4, RP= 3% Inflation rate: β= 0.5, RP=3% Commodity prices: β=-0.6, RP=6% Standards and Poor’s 500 Index Returns: β=1.5, RP=8% While the risk free rate is 4% Using the APT formula, calculate the expected returns on the said stock
13. 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) REQUIRED RATE OF RETURN (Percent) 20.0 16.0 20 12.0 16 8.0 12 4.0 0 0 CAPM Elements Risk-free rate (TRF) Market risk premium (RPM) Happy Corp. stock's betal Required rate of return on Happy Corp. stock 0 Happy Corp.'s new required rate of return is F 0.6, 7.6 HC's Stock ☐ 0.5 An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. 0 1.0 RISK (Beta) Tool tip: Mouse over the…
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM Investment Beta Analyst's Estimated Return Stock X 2.3 15.5% Stock Y 1.2 13.6% Market Portfolio 1.0 11.5% Risk-free rate 4.0% What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?
Assume that the risk-free rate of return is 4% and the market risk premium (ie., Rm- Rf) is 89%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's expected retum should be ---- A) 10.53% B) 14.24% 23.15% D) 6.59%
11. 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: CAPM Elements Value Risk-free rate (rRFrRF) ________? Market risk premium (RPMRPM) __________? Happy Corp. stock’s beta ___________? Required rate of return on Happy Corp. stock ___________? An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML.
4
You have observed the following returns over time: Year Stock X Stock Y Market 2015 14% 13% 12% 2016 19 7 10 2017 −16 −5 −12 2018 3 1 1 2019 20 11 15 Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
4
I need help with C
You are given the following partial covariance and correlation tables from historical data: Securities J K Market Securities J K Market 1.24 1.11 1.17 1.03 Covariance Matrix K 0.90 J 0.0020480 0.0021600 Also, you have estimated that the market's standard deviation is 4.3 percent. For the coming year, the expected return on the market is 14.0 percent and the risk-free rate is expected to be 4.0 percent. Given this information, determine the beta for Security K for the coming year, assuming CAPM is the correct model for required returns. Correlation Matrix K 0.60 1.00 0.90 1.00 0.60 0.80 Market 0.0020480 0.0021600 Market 0.80 0.90 1.00 Ston sharing Hidel lines We

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