A stock has an expected return of 11 percent, its beta is 1.20, and the risk-free rate is 4.4percent. What must the expected return on the market be? (Do not round intermediatecalculations and enter your answer as a percent rounded to 2 decimal places, e.g.,32.16.)Answer is complete but not entirely correct.12.32%Market expected return

Formula to Calculate the Expected Equity Return as belowExpected Equity Return = Risk Free return +…

Answered: A stock has an expected return of 11…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider the following information on Stocks I and II: State of Economy Recession Normal Irrational exuberance. Probability of State) of Econony 15 .70 .15 a. Stock I beta Stock Il beta. b. Stock I standard deviation Stock Il standard deviation Rate of Return if State Occurs. Stock I Stock II 05 18 07 The market risk premium is 7 percent, and the risk-free rate is 3.5 percent. a. Calculate the beta of each stock. Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. b. Calculate the standard deviation of each stock. c. More systematic nsk d. More unsystematic risk e. "Riskier stock Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. c. Which stock has the most systematic risk? d. Which one has the most unsystematic risk? e. Which stock is "riskler"? -.21 .10 39 % %
Assume the risk-free rate is 3% and the market return is 10%. Stock X Stock Y Stock Z Beta 0.65 0.90 Current price $13.50 $26.50 Correlation (X/Y) = 0.35 (X/Z) = 0 (Y/Z) = 0.55 a) Most equity research concludes that Stock X is much more volatile compared to the “market". On average, Stock X's volatility is about 1.5 times that of the stock market. Based on CAPM, estimate the required return of Stock X. b) It is expected that Stock Y will pay a per share dividend of $0.43 one year from now, and the dividend will increase by an average of 6% per year in the foreseeable future. According to CAPM, is Stock Y overvalued or undervalued? c) Assume that Stock Z is fairly-priced today. Stock Z has just paid a dividend of $2. It is expected that its dividend will increase by 50% in the first year, 0% in the second year, 10% in the third year, and starting from the fourth year, the company will maintain the dividend growth rate to be 5% forever. How much would Stock Z be worth today if its…
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A stock has an expected return of 0.11, its bets is 0.82, and the risk-free rate is 0.04. What must the expected return on the market be?
What is the required return for each stock? What is required return for stock B? Scenario Probability Stock A Stock B Market Risk-free rate Bust 0.25 -0.15 -0.05 Normal 0.55 0.2 0.1 Boom 0.2 0.4 0.3 Beta 1.2 0.9 Expected return 0.13 0.05
Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Recession .17 .08 −.12 Normal .58 .11 .17 Boom .25 .16 .34 a. Calculate the expected return for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the standard deviation for Stocks A and B. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Consider the following information about Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Recession Economy Stock I Stock Il .25 .06 -.30 Normal .45 .18 .06 Irrational exuberance .30 .12 .45 The market risk premium is 8 percent, and the risk-free rate is 6 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock II's return is stock's systematic risk/beta, Stock percent, and the Stock I beta is percent, and the Stock II beta is . The standar Therefore, based on the is "riskier".
7. Consider the following information about Stocks I and II: Probability of Rate of Return if State Occurs State of Economy Recession Normal Irrational exuberance State of Economy .25 .50 .25 Stock I .02 .21 .06 Stock Il -.25 .09 .44 The market risk premium is 8 percent, and the risk-free rate is 4 percent. Which stock has the most systematic risk? Which one has the most unsystematic risk? Which stock is "riskier"? Explain.
A stock has a beta of 0.81, the expected return on the market is 11%, and the risk- free rate is 10.5%. What must the expected return on this stock be? (Do not round intermediate calculations. Enter answer as a percent rounded to 2 decimal places.)
Suppose the common stock of United Industries has a beta of 0.83 and an expected return of 8.7 percent. The risk-free rate of return is 3.4 percent while the inflation rate is 2.8 percent. What is the expected market risk premium? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
A 243.
If Stock Z is correctly priced, you can infer that the expected market return is ____%. Do not round any intermediate work, but round your final answer to 2 decimal places (example: enter 12.34 for 12.34%). Do not enter the % sign. Margin of error for correct responses: +/- .05 expected return (implied by market price) Beta Stock Z 12% 1.48 T-bonds 5%

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