Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Suppose firms X, Y and Z have the expected returns and betas shown below: Company Expected Return Beta Firm X 7.53% 0.47 Firm Y 13.75% 1.14 Firm Z 17.10% 1.40 The risk-free rate is currently 5.20% and the market risk premium is 7.50%. A) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm X? % (Round your answer to two decimal places) B) According to the SML, is Firm X currently undervalued, correctly priced, or overvalued? O(No answer given) Ocorrectly valued Oundervalued Oovervalued C) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm Y? (Round your answer to two decimal places) D) According to the SML, is Firm Y currently undervalued, correctly priced, or overvalued? O(No answer given) Oovervalued Oundervalued Ocorrectly valued
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Transcribed Image Text:Suppose firms X, Y and Z have the expected returns and betas shown below: Company Expected Return Beta Firm X 7.53% 0.47 Firm Y 13.75% 1.14 Firm Z 17.10% 1.40 The risk-free rate is currently 5.20% and the market risk premium is 7.50%. A) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm X? % (Round your answer to two decimal places) B) According to the SML, is Firm X currently undervalued, correctly priced, or overvalued? O(No answer given) Ocorrectly valued Oundervalued Oovervalued C) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm Y? (Round your answer to two decimal places) D) According to the SML, is Firm Y currently undervalued, correctly priced, or overvalued? O(No answer given) Oovervalued Oundervalued Ocorrectly valued
C) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm Y? % (Round your answer to two decimal places) D) According to the SML, is Firm Y currently undervalued, correctly priced, or overvalued? O(No answer given) Oovervalued Oundervalued Ocorrectly valued E) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm Z? % (Round your answer to two decimal places) F) According to the SML, is Firm Z currently undervalued, correctly priced, or overvalued? O(No answer given) Oovervalued Oundervalued Ocorrectly valued G) What would the market risk premium have to be in order for Firm X and Firm Z to be correctly priced relative to each other? (You may ignore Firm Y. Round your answer to two decimal places) % H) What would the risk-free rate have to be in order for Firm X and Firm Z to be correctly priced relative to each other? (You may ignore Firm Y. Round your answer to two decimal places)
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Transcribed Image Text:C) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm Y? % (Round your answer to two decimal places) D) According to the SML, is Firm Y currently undervalued, correctly priced, or overvalued? O(No answer given) Oovervalued Oundervalued Ocorrectly valued E) According to CAPM, what rate of return each year should investors require as compensation for investing in Firm Z? % (Round your answer to two decimal places) F) According to the SML, is Firm Z currently undervalued, correctly priced, or overvalued? O(No answer given) Oovervalued Oundervalued Ocorrectly valued G) What would the market risk premium have to be in order for Firm X and Firm Z to be correctly priced relative to each other? (You may ignore Firm Y. Round your answer to two decimal places) % H) What would the risk-free rate have to be in order for Firm X and Firm Z to be correctly priced relative to each other? (You may ignore Firm Y. Round your answer to two decimal places)
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