Problem 13-19 Reward-to-Risk Ratios [LO4] Stock Y has a beta of 1.4 and an expected return of 15.2 percent. Stock Z has a beta of 7 and an expected return of 9.1 percent. What would the risk-free rate have to be for the two stocks to be correctly priced? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Risk-free rate %

Problem 13-19 Reward-to-Risk Ratios [LO4] Stock Y has a beta of 1.4 and an expected return of 15.2 percent. Stock Z has a beta of 7 and an expected return of 9.1 percent. What would the risk-free rate have to be for the two stocks to be correctly priced? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Risk-free rate %

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

QUESTION 1 Exhibit 5.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stock Rit Rmt ai Beta A 10.6 15 0 0.8 Z 9.8 8.0 0 1.1 Rit = return for stock i during period t Rmt = return for the aggregate market during period t Refer to Exhibit 5.5. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (ignore differential systematic risk)? a. 4.40 b. −1.70 c. 3.40 d. −4.40 e. −1.86
Problem 13-26 Systematic versus Unsystematic Risk [LO3] Consider the following information about Stocks I and II: State of Economy Recession Normal Irrational exuberance Probability of State of Economy 28 53 19 Rate of Return if State) Occurs The standard deviation on Stock I's return is t deviation on Stock It's return is stock's systematic risk/beta, Stock Stock I .05 17 .06 Stock Il -20 .07 40 The market risk premium is 8 percent, and the risk-free rate is 2 percent. (Do not round. intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) percent, and the Stock I beta is percent, and the Stock ill beta is "riskier". The standard Therefore, based on the
Question 29 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 14.8 percent O 25.1 percent 12.0 percent
stions Problem 8.13 (CAPM, Portfolio Risk, and Return) eBook Problem Walk-Through Question 11 of 15▸ Check My Work Consider the following information for stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta A 8.50% 16% 0.8 C 9.25 10.75 16 16 1.1 1.7 Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 6.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) a. What is the market risk premium (rM - TRF)? Round your answer to one decimal place. % b. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. c. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places. % d. What would you expect the standard deviation of Fund P…
QUESTION 37 You have developed the following data on three stocks: Stocks Std. Deviation Beta A 0.45 0.60 B 0.60 0.75 C 0.55 1.50 If you are a risk minimizer, you should choose Stock a well-diversified portfolio. if it is to be held in isolation and Stock if it is to be held as part of A; A O B; A C; A O A; C O C; B 3.75 po 13
Question 25 (2.5 points) Listen The risk-free rate is 1.45% and the market risk premium is 5.21%. According to the Capital Asset Pricing Model (CAPM), a stock with a beta of 1.13 will have an %. expected return of 1) 7.34% 2) 15.66% 3) 5.56% 4) 9.12% 5) 13.25%
ed Problem 13-26 Systematic versus Unsystematic Risk [LO3] Consider the following information about Stocks I and II: Rate of Return if State Occurs Probability of State of State of Economy Recession Economy Stock I .26 .05 Stock II -.31 Normal .50 .22 .11 Irrational exuberance .24 .05 .51 The market risk premium is 5 percent, and the risk-free rate is 3 percent. (Do not round intermediate calculations. Enter your standard deviation answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 2 decimal places, e.g., 32.16.) The standard deviation on Stock I's return is deviation on Stock II's return is es stock's systematic risk/beta, Stock percent, and the Stock I beta is The standard percent, and the Stock II beta is Therefore, based on the is "riskier".
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
A4 6 a Suppose we observe two stocks with the following characteristics: Stock Expected return Beta K 20% 1.6 L 12% 0.9 a. An asset is said to be overvalued if its price is too high given its expected return and risk. The risk-free rate is currently 6%. Is one of the two stocks overvalued relative to the other? Explain your answer fully (i.e., provide reasons why you think the stock is or is not overvalued).
Problem 8.13 (CAPM, Portfolio Risk, and Return) Consider the following information for stucks A, B, and C. The returns on the three stocks positively correlated, but they are not perfectly correlated. That is, each of the correlation Coefficients is between 0 and 1₁) ame Stock Expected Return Stendanction Beta A 6.25% 15% 0.7 B 7.50 15 8.50 15 C 112 1.6 Find P has one-third of its funds invested of each of the three stocks. The risk-free rate is 4.5%, and the market is in equilibrium. (That is required returns equal expected returns) a) What is the market risk premium (YM-XRF)? 5) What is the beta of Fund P? c) What is the required return of Fund P?
19 [Question text] The common stock of DEE Bhd. has a beta of 1.24 and an actual expected return of 13.25 percent. The risk-free rate of return is 3.7 percent and the market rate of return is 11.78 percent. Which one of the following statements is TRUE given this information? Select one: A. The actual expected stock return indicates the stock is currently overpriced. B. The stock is currently underpriced. C. The stock has less systematic risk than the overall market. D. The actual expected stock return will graph above the security market lin
11.18 Reward-to-Risk Ratios Stock Y has a beta of 1.15 and an expected return of 11.8 percent. Stock Z has a beta of .85 and an expected return of 10.7 percent. If the risk-free rate is 4.5 percent and the market risk premium is 7.1 percent, are these stocks correctly priced?

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