beta of 1.10 the real risk free rate is 3 percent investors anticipate a 2 percent future inflation rate and the market risk premium is 5 percent what is bbx required rate of return
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beta of 1.10 the real risk free rate is 3 percent investors anticipate a 2 percent future inflation rate and the market risk premium is 5 percent what is bbx required
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- Suppose that you know that the following well-diversified portfolios are fairly priced in a two-factor economy where the risk-free rate is 5%. Determine the risk premiums associated with each factor and compute the expected market risk premium for the next period based on these figures.: betal beta 2 E(r) p1 1.00 -.5 10% p2 -.5 1.50 10%Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.30 −5 % 18 % Normal economy 0.60 19 % 7 % Boom 0.10 24 % 7 % b. Calculate the expected rate of return and standard deviation for each investment.Consider the following scenario analysis: Scenario Probability Stocks Bonds Recession 0.30 -6 % +15% Normal Economy 0.30 +14 + 7 Boom 0.40 +26 +5 Calculate the expected rate of return and standard deviation for each investment? Which investment would you prefer?
- What is Loco Inc's required rate of return if it has a beta of 0.82, that market risk premium of 4.7%, investors expect a 3% future inflation rate, and the real risk-free rate is 2%. A. 6.73% B. 6.64% C. 9.30% D. 9.56% E. 8.85%Question 2: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Draw the security market line (SML) Use the CAPM to calculate the required return, on asset A. Assume that as a result of recent economic events, inflationary expectations have declined by 3%, lowering RF and RM to 5% and 9%, respectively. Draw the new SML on the axes in part a, and calculate and show the new required return for asset A. Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 2%, to be14%. Ignoring the shift in part c, draw the new SML on the same set of axes that you used before, and calculate and show the new required return for asset A. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets?Question 2: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Draw the security market line (SML) Use the CAPM to calculate the required return, on asset A. Assume that as a result of recent economic events, inflationary expectations have declined by 3%, lowering RF and RM to 5% and 9%, respectively. Draw the new SML on the axes in part a, and calculate and show the new required return for asset A. Step 1 Security market line (SML) is a graphical representation of how the approach of the capital asset pricing model (CAPM) operates. SML represents the combination of risk-free return, market return, and beta to depict the expected return of the security. CAPM is a financial approach that helps to determine the expected return of security by creating a relationship between the systematic risk associated with the security and returns of assets. Expected return on a stock is the…
- Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 15.0 percent. Given this information, determine the required rate of return for Security J for the coming year, using CAPM. Year 1 2 O21.20% 3 4 5 6 O22.34% O 23.49% O24.63% O24.10% Market 10.00% 12.00% 16.00% 14.00% 12.00% 10.00% Security J 12.00% 14.00% 18.00% 22.00% 18.00% 14.00%Given the current risk-free rate is 9% and the market return is 12%. TI Investment Beta A 0.65 1.12 C 0.87 1.19 E 0.56 Calculate the required rate of return for each of the investments by using the Capital Asset Pricing Model (CAPM). ii. i. If you invest an equal amount in each investment, what is the portfolio beta?Question 2: Assume that the risk-free rate, RF, is currently 8%, the market return, RM, is 12%, and asset A has a beta, of 1.10. (could be done on word document or excel). Assume that as a result of recent economic events, inflationary expectations have declined by 3%, lowering RF and RM to 5% and 9%, respectively. Draw the new SML on the axes in part a, and calculate and show the new required return for asset A. Assume that as a result of recent events, investors have become more risk averse, causing the market return to rise by 2%, to be14%. Ignoring the shift in part c, draw the new SML on the same set of axes that you used before, and calculate and show the new required return for asset A. From the previous changes, what conclusions can be drawn about the impact of (1) decreased inflationary expectations and (2) increased risk aversion on the required returns of risky assets?
- Suppose you have the following investments: Security Amount Invested Expected Return Beta A $2,000 5% .80 B $4,000 10% .95 C $6,000 15% 1.10 D $8,000 18% 1.40 What is the expected return on this portfolio?CAPM The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model: Draw a graph similar to show how the expected return varies with beta. What is the risk premium on the market? What is the required return on an investment with a beta of 1.5? If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV? If the market expects a return of 11.2% from stock X, what is its beta?Asset A has an expected return of 22.8% and a beta of 1.8. The expected market return is 14%. What is the risk-free rate? 0.6% O1.2% 3.0% 4.0% 6.0%