Assume the following data for a stock: risk-free rate - 5 percent: beta (market) - 1.4; beta (size) - 0.4; beta (book-to- market)-1.1: market risk premium - 13 percent; size risk premium - 9.7 percent; and book-to-market risk premium- 11.2 percent. Calculate the expected return on the stock using the Fama-French three-factor model. O 26.5 percent O 14.8 percent O 25.1 percent

Assume the following data for a stock: risk-free rate - 5 percent: beta (market) - 1.4; beta (size) - 0.4; beta (book-to- market)-1.1: market risk premium - 13 percent; size risk premium - 9.7 percent; and book-to-market risk premium- 11.2 percent. Calculate the expected return on the stock using the Fama-French three-factor model. O 26.5 percent O 14.8 percent O 25.1 percent

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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Expected Return on the market HPR Beta Risk-free rate Stock ABC 15.68% 1.2 1% 6.68% What is the alpha for stock ABC? Answer as a percent. Show work.
Question 16 a. Based on the following information, calculate the expected return and standard deviation for each of the following stocks. What are the covariance and correlation between the returns of the two stocks? Calculate the portfolio return and portfolio standard deviation if you invest equally in each asset. Returns State of Economy Prob J K Recession 0.25 -0.02 0.034 Normal 0.6 0.138 0.062 Boom 0.15 0.218 0.092 b. A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent. The risk-free rate is 4 percent, and the Page 7 of 33 expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .45 correlation with the market portfolio and a standard deviation of 55 percent? c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market…
Ch. 11. Using CAPM, A stock has an expected return on 10.7 percent, the risk-free rate is 4.1 percent, and the market risk premium is 6 percent. What must the beta of this stock be? Round to two places past the decimal point as "X.XX"
Question 4 The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent.What is the expected rate of return on a stock with a beta of 1.08?Select one:A. 12.22 percentB. 11.47 percentC. 10.15 percentD. 10.92 percent
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Question 1 Consider the three stocks in the following table. P, represents price at time t, and Qt represents shares outstanding at time t. Po Qo P₁ Q₁ 50 100 60 100 A IB 30 200 24 200 C 20 200 30 200 a. Calculate the rate of return on a price-weighted index of the three stocks b. Calculate the rate of return on a market value-weighted index of the three stocks
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Which one of the following stocks is correctly priced if the risk-free rate of return is 3.0 percent and the market risk premium is 7.5 percent? Expected Return 8.46% Stock A B с D E 0000С Stock A O Stock D Stock C O Stock E Beta 77 1.46 1.27 1.44 .95 Stock B 12.47 11.19 13.80 8.65
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which one is correct? QUESTION 8 Exhibit 7.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) You expect the risk-free rate (RFR) to be 3 percent and the market return to be 8 percent. You also have the following information about three stocks. Current Expected Expected Stock Beta Price Price Dividend X 1.25 $20 $23 $1.25 Y 1.50 $27 $29 $0.25 Z 0.90 $35 $38 $1.00 Refer to Exhibit 7.2. What are the expected (required) rates of return for the three stocks (in the order X, Y, Z)? a. 21.25 percent, 8.33 percent, 11.43 percent b. 16.50 percent, 5.50 percent, 22.00 percent c. 15.00 percent, 3.50 percent, 7.30 percent d. 6.20 percent, 2.20 percent, 8.20 percent e. 9.25 percent, 10.5 percent, 7.5 percent

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