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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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
Transcribed Image Text:Aluminum maker Alcoa has a beta of about 1.07, whereas Hormel Foods has a beta of 0.84. If the expected excess return of the market portfolio is 5%, which of these
firms has a higher equity cost of capital, and how much higher is it?
The firm that has the higher equity cost of capital is
%. (Select from the drop-down menu and round to two decimal places.)
by
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- Kaiser Aluminum has a beta of 0.70. If the risk-free rate (Res) is 5.0%, and the market risk premium (RPM) is 7.4%, what is the firm's cost of equity from retained earnings based on the CAPM? Your answer should be between 8.70 and 11.25, rounded to 2 decimal places, with no special characters.arrow_forwardA manager believes his firm will earn a return of 12.50 percent next year. His firm has a beta of 1.40, the expected return on the market is 10.50 percent, and the risk-free rate is 3.50 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.) Required return % Determine whether the manager is saying the firm is undervalued or overvalued. O overvalued O undervaluedarrow_forwardThe Swanson Corporation's common stock has a beta of 1.8. If the risk-free rate is 4.9 percent and the expected return on the market is 11 percent, what is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital %arrow_forward
- The Up and Coming Corporation's common stock has a beta of 1.29. If the risk-free rate is 0.04 and the expected return on the market is 0.08, what is the company's cost of equity capital? Enter the answer with 4 decimals (e.g. 0.1234).arrow_forwardPlease complete in Excel (and show work)arrow_forwardHR Corporation has a beta of 2.0, while LR Corporation's beta is 0.5. The risk-free rate is 10 percent, and the required rate of return on an average stock is 15 percent. Now the risk-free rate falls by 3 percentage points, the required return on the market falls to 11 percent, and the betas remain constant. When all of these changes are made, what will be the difference in the required returns on HR's and LR's stocks?arrow_forward
- What is the beta for Ford Motors Corporation? Briefly interpret what the number means. What is the unit of it? Percentage? Dollar? For instance, if you find it to be 0.8, is it 0.8%, 80%, $0.8, or something else? What do we compare it to, to determine the riskiness of Ford Motors Company's stocks?arrow_forwardWhat is the market return if the company's cost of equity is 11.68% and the company has a beta coefficient of 1.8. The expected risk free return is 5.25%arrow_forward
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