a. Estimate the beta of an unlevered firm in the commuter airline business based on Jaxair's market-determined beta. Do not round intermediate calculations. Round your answer to three decimal places. 1.36 b. Now assume that rd = TRF = 9% and that the market risk premium RPM = 4%. Find the required rate of return on equity for an unlevered. commuter airline. Do not round intermediate calculations. Round your answer to three decimal places. % c. Air Tampa is considering three capital structures: (1) $1 million debt, (2) $2 million debt, and (3) $3 million debt. Estimate Air Tampa's rs for these debt levels. Do not round intermediate calculations. Round your answers to two decimal places. 1. Air Tampa's rs for $1 million debt: 2. Air Tampa's rs for $2 million debt: 3. Air Tampa's rs for $3 million debt: % % %

a. Estimate the beta of an unlevered firm in the commuter airline business based on Jaxair's market-determined beta. Do not round intermediate calculations. Round your answer to three decimal places. 1.36 b. Now assume that rd = TRF = 9% and that the market risk premium RPM = 4%. Find the required rate of return on equity for an unlevered. commuter airline. Do not round intermediate calculations. Round your answer to three decimal places. % c. Air Tampa is considering three capital structures: (1) $1 million debt, (2) $2 million debt, and (3) $3 million debt. Estimate Air Tampa's rs for these debt levels. Do not round intermediate calculations. Round your answers to two decimal places. 1. Air Tampa's rs for $1 million debt: 2. Air Tampa's rs for $2 million debt: 3. Air Tampa's rs for $3 million debt: % % %

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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Similar questions

Consider two investment opportunities A and B. Investment A: Expected return = 0.08, Standard deviation = 0.06 Investment B: Expected return = 0.24, Standard deviation = 0.08 Which investment would you choose A or B? Provide the rationale behind your decision. b. If company is selecting projects with the negative NPV, what impact this decision would have on the share price of the company c. While forecasting future sales, internal sales forecast is more appropriate or external sales forecast? d. Why are dividends the basis for the valuation of common stock? e. When the constant growth dividend valuation model is used to explain a stock's current price, the quantity (ke - g) represents the expected dividend yield. Is this statement right or wrong? Explain.
if a firm has had sales which have been extremely variable, the firm should Question 1 options: project COGS instead. begin by projecting cash. forgo projections. forecast dividends first. create multiple forecasts.
Quantitative Problem: You are given the following probability distribution for CHC Enterprises: State of Economy Probability Rate of return Strong 0.15 20 % Normal 0.55 9 % Weak 0.30 -5 % What is the stock's expected return? Do not round intermediate calculations. Round your answer to two decimal places.
a. Fill in the missing values in the table. (Leave no cells blank - be certain to enter O wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Security Firm A Expected Return Standard Deviation Correlation Beta 0.119 0.22 0.95 Firm B 0.131 0.41 1.50 Firm C 0.112 0.75 0.26 The market portfolio 0.12 0.19 The risk-free asset 0.05 * With the market portfolio b-1. What is the expected return of Firm A? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %
6) An investor holds a portfolio of stocks and is considering investing in the DBB Company. The firm's prospects look neutral, and you estimate the following probability distribution of possible returns: Conditions Recession P Returns on DBB Returns on DVI 0.12 -33% -12% Below Average 0.15 -18% 7% Average 0.46 12% 11% Above Average 0.15 25% 23% Boom 0.12 37% 25% a) How much is the expected return for DBB? b) How much is the coefficient of variation for DBB? c) Now let's say you want to add another asset, DVI, to your portfolio. You sell 35% of DBB to purchase DVI. How much is your expected return for this portfolio? d) How much is the coefficient of variation for the new portfolio?
Suppose the market portfolio has an expected return of 10% and a volatility of 20%, while Microsoft’s stock has a volatility of 30%. Microsoft’s equity cost of capital is 10%. Based on this information, which statement is most likely to be correct? (assume that all assumptions of CAPM are satisfied) Group of answer choices Microsoft’s beta is lower than 1. There is not enough information to determine Microsoft’s beta. Microsoft’s beta is 1. Microsoft’s beta is higher than 1.
1)Please draw graph and show upward and downward yield curves, Define them briefly. 2)Express Steel Corporation wishes to calculate its cost of common stock equity, by using the capital asset pricing model (CAPM). The firm’s investment advisors and its own analysts indicate that the risk-free rate equals 9,1%; the firm’s beta equals 0,75; and the market return equals 16%. Please estimate the cost of common stock equity by using CAPM.
Dog
Interpreting beta A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 0.8. a. If the market return increased by 23%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 6%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return? d. Would this asset be considered more or less risky than the market? a. If the market return increased by 23%, the impact on the asset's return is %. (Round to one decimal place. Enter a negative percentage number if the asset return decreases.)
Ran Company wants to determine its cost of common stock equity using the CAPM. The company's investment advisors indicate that the firm’s beta is equals to 1.3;the risk-free rate is 6%; and the market return is 10%. (Do not round off between computations. Round off the final answer to two decimal places. Example of writing your answer 2.58%)

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