Last year, Rocket Inc. earned a 20% return. Farmer's Corp. earned 10%. The overall market return last year was 15%, and the risk-free rate was 2%. If Rocket stock has a beta of 1.9 and Farmer's has a beta of 0.6, which stock performed better once you take risk into account? Rocket's expected return is 26.7 %. (Enter as a percentage and round to one decimal place.) Farmer's expected return is %. (Enter as a percentage and round to one decimal place.)

Last year, Rocket Inc. earned a 20% return. Farmer's Corp. earned 10%. The overall market return last year was 15%, and the risk-free rate was 2%. If Rocket stock has a beta of 1.9 and Farmer's has a beta of 0.6, which stock performed better once you take risk into account? Rocket's expected return is 26.7 %. (Enter as a percentage and round to one decimal place.) Farmer's expected return is %. (Enter as a percentage and round to one decimal place.)

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

See similar textbooks

Similar questions

Porter Plumbing's stock had a required return of 10.25% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.) Select the correct answer. a. 12.25% b. 12.05% c. 12.45% d. 12.65% e. 12.85%
CyberSecure Inc. has annual growth rate of 4.6 percent and is equally as risky as the market. The stock is currently selling for $16 a share. The overall stock market has a 10.9 percent rate of return which includes an estimated risk premium of 7.8 percent. What is the expected rate of return on this stock? (round answer to whole number with one decimal point: i.e., use 1.2 percent instead of 0.0123)
Porter Plumbing’s stock had a required return of 11.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.)
Porter Plumbing's stock had a required return of 10.75% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? (Hint: First calculate the beta, then find the required return.) Select the correct answer. a. 12.96% b. 13.06% c. 13.16% d. 13.26% e. 13.36% Zacher Co.'s stock has a beta of 1.28, the risk-free rate is 4.25%, and the market risk premium is 5.50%. What is the firm's required rate of return? Select the correct answer. a. 10.09% b. 10.49% c. 11.29% d. 10.89% e. 11.69%
Last year, damen Inc. stock had an expected rate of return of 17.3% while the market risk-premium was 7.0% and the risk-free rate was 4.1%. For this coming year, if the market risk-premium is 2% higher but everything else like damen Inc. stock's beta or the risk free-rate stay the same as last year, what willl be the expected rate of return for the coming year for damen Inc. stock? Answer as a percent to two places. when you first solve for beta do not round that number at all. Use that number with all the digits or at least 5 places to obtain the new expected rate of return for the stock.
During the past 5-year, the monthly average return and standard deviation of Netflix (NFLX) stock were 3.5% and 10%, respectively. For the same period, the monthly average return and standard deviation of Verizon (VZ) were 0.6% and 4.6%, respectively. The correlation between NFLX and VZ was -0.1. Assume that the monthly risk-free rate is 0.1%. ) What is the Sharpe ratio for NFLX? What is the Sharpe ratio for VZ? Show your calculation steps briefly and clearly. Find the minimum-variance portfolio (MVP), i.e., the weight of NFLX and VZ in the MVP. You do not need to show your calculation steps for this subquestion. Find the optimal risky portfolio P*, i.e., the weight of NFLX and VZ in P*. You do not need to show your calculation steps for this subquestion. Calculate the Sharpe ratio for the optimal risky portfolio P*. Verify that P* offers a higher Sharpe ratio than NFLX and VZ.
Visa, Inc. (V) has a beta of 1.08, is selling for $56.72, and will pay a $2.35 dividend at the end of the year. If the stock is priced at $57.15 at year-end, it is __________, so __________ it. Assume the risk-free rate is 3.05%, and the expected market return is 3.92%. A. underpriced / sell B. underpriced / buy C. overpriced / sell D. fair-valued / hold
You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information: GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum). And the current market price of GRBH stock is $45. ind the present value of GRBH stock based on the information above. Is the stock over- or under-priced?
You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information: GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum). And the current market price of GRBH stock is $45. Find the present value of GRBH stock based on the information above. Is the stock over- or under-priced? Find the alpha ( Expected abnormal rate of return, c ) assuming the mispriced figure would be corrected in a year.
You want to check if GRBH stock is fairly priced in the markets by using the fundamental analysis. For this purpose, you have gathered the following information: GRBH pays dividends once a year and the next dividend payment is expected to be made in one year. You project the EPS of the first and second year to be $5 and $7 respectively. The company dividend payout ratio is stable at 0.2. At the end of the second year, you assume that the company would become the average company in the industry. The industry average PE ratio is 8. You believe that the appropriate required rate of return on GRBH stock is 10% (CCR per annum). And the current market price of GRBH stock is $45 Find the alpha ( Expected abnormal rate of return, c ) assuming the mispriced figure would be corrected in a year.
Over the next year, the stock market will either be a bull market or a bear market. The probability of a bull market is 25.00%, while the probability of a bear market is 84.00%. Shares in Meguire and Company will have a return of 16.80% in a bull market, and -8.30% in a bear market. The risk-free rate is 2.90%. What is the Sharpe Ratio of Meguire and Company shares?
Porter Plumbing's stock had a required return of 11.00% last year when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rate of return? Select the correct answer. a. 13.32% b. 13.42% c. 13.52% d. 13.62% e. 13.72%

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS