An analyst is studying the movement of the stock Shrek. His research and came up with a different rates of return for Shrek, 25% for strong and 10% for weak economic scenarios. Based on the latest economic outlook, the probability of having a strong, normal, and weak economy, are 30%, 50%, and 20%, respectively. The total expected return of Shrek stock is 17% considering the various probabilities. Determine the rate of return of Shrek if the economy turns normal. Sample format: XX.XX%

An analyst is studying the movement of the stock Shrek. His research and came up with a different rates of return for Shrek, 25% for strong and 10% for weak economic scenarios. Based on the latest economic outlook, the probability of having a strong, normal, and weak economy, are 30%, 50%, and 20%, respectively. The total expected return of Shrek stock is 17% considering the various probabilities. Determine the rate of return of Shrek if the economy turns normal. Sample format: XX.XX%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

See similar textbooks

Similar questions

A stock analyst is interested with the stock of SMC. He conducted a research and came up with a different rates of return for these stock; 10% for strong and 1% for weak economic situations. Based on an economic report, the probability of having a weak economy, normal, and strong, are 30%, 50%, and 20%, respectively. The computed expected return of SMC stock is 5.3%. What is the rate of return of SMC if the economy turns normal? (In percentage)
An analyst is studying the movement of the stock ABC. His research and came up with a different rates of return for ABC, 25% for strong and 10% for weak economic scenarios. Based on the latest economic outlook, the probability of having a strong, normal, and weak economy, are 30%, 50%, and 20%, respectively. The total expected return of ABC stock is 17% considering the various probabilities. Determine the rate of return of ABC if the economy turns normal.
An analyst has modeled the stock of a company using the Fama - French three - factor model. The market return is 8 %, the return on the SMB portfolio ( rSMB) is 2.8%, and the return on the HML portfolio (rHML) is 5.6 %. If ai = 0, bi = 1.2, ci = -0.4, and di = 1.3, what is the stock's predicted return? Do not round intermediate calculations. Round your answer to two decimal places. %
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 12%, the return on the SMB portfolio (rSMB) is 2.1%, and the return on the HML portfolio (rHML) is 4.6%. If ai = 0, bi = 1.2, ci = -0.4, and di = 1.3, what is the stock's predicted return? Do not round intermediate calculations. Round your answer to two decimal places.
Lisa Miller at Basket Wonders (BW) is attempting to determine the rate of return required by their stock investors. Lisa is using a 6% Risk free rate (rf) and a long-term market expected rate of return of 10%. A stock analyst following the firm has calculated that the firm beta is 1.2. What is the required rate of return on the stock of Basket Wonders?
An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 5%, the expected return on the first factor (r₁) is 14%, and the expected return on the second factor (r2) is 8%. If bil 0.5 and bi2 = 0.8, what is Crisp's required return? Do not round intermediate calculations. Round your answer to one decimal place. % =
A. Mubita is contemplating on investing in Stocks A and B with the following probability distributions of possible future returns: Probability (Pi ). 0.1, 0.2, 0.4, 0.2, 0.1 Stock A (%) 15, 0, 5, 10, 25 Stock B (%) 20, 10, 20, 30,50 Calculate the expected rate of return for each stock. Assuming the Capital Asset Pricing Model (CAPM) holds and stock B’s beta is greater than stock A’s beta by 0.27, what is the excess return on the market portfolio?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 9%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 5.9%. If ai = 0, bi = 1.2, ci = -0.4, and di = 1.3, what is the stock's predicted return? Round your answer to two decimal places. %
An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?
Michael, an analyst at Kitsch Partners (KP), models the stock of the company. Suppose that the risk-free rate rRFrRF = 6.5%, the required market return rMrM = 12.5%, the risk premium for small stocks rSMBrSMB = 3.2%, and the risk premium for value stocks rHMLrHML = 4.8%. Suppose also that Michael ran the regression for Kitsch Partners’s stock and estimated the following regression coefficients: aKPaKP = 0.00, bKPbKP = 0.9, cKPcKP = 0.2, and dKPdKP = 0.3. If Michael uses a Fama-French three-factor model, then which of the following values correctly reflects the stock’s required return? 3.18% 17.94% 7.48% 13.98%
Wilson is now evaluating the expected performance of two common stocks, Furhman Labs Inc. and Garten Testing Inc. He has gathered the following information:∙ The risk-free rate is 5%.∙ The expected return on the market portfolio is 11.5%.∙ The beta of Furhman stock is 1.5.∙ The beta of Garten stock is .8.Based on his own analysis, Wilson’s forecasts of the returns on the two stocks are 13.25% for Furhman stock and 11.25% for Garten stock. Calculate the required rate of return for Furhman Labs stock and for Garten Testing stock. Indicate whether each stock is undervalued, fairly valued, or overvalued.
Recently, Kellie determined that the required rate of return for Stock Q is 11 percent. In her analysis she determined that the risk-free rate of return, r is 4 percent and that the required return on the market portfolio, r is 9 percent. Today, however, Kellie received new information that indicates the market risk premium, RP is actually 1 percent higher than she estimated in her original analysis. Based on this new information, what should be the required rate of return for Stock Q?