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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Question
11. Changes to the security market line
The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows:
|
CAPM Elements
|
Value
|
|---|---|
| Risk-free rate (rRFrRF) | ________? |
| Market risk premium (RPMRPM) | __________? |
| Happy Corp. stock’s beta | ___________? |
| Required |
___________? |
An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML.
Transcribed Image Text:(HC). Based on the graph, complete the table that follows:
У Тools
ips
ps
20.0
16.0
12.0
Return on HC's Stock
8.0
4.0
0.
0.5
1.0
1.5
2.0
RISK (Beta)
REQUIRED RATE OF RETURN (Percent)
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