Reward-to-Risk Ratios [LO4] Stock Y has a beta of 1.3 and an expected return of 18.5 percent. Stock Z has a beta of 0.7 and an expected return of 12.1 percent. If the risk-free rate is 8 percent and the market risk premium is 7.5 percent, are these stocks correctly priced? Reward-to-Risk Ratios [LO4] In the previous problem, what would the risk-free rate have to be for the two stocks to be correctly priced?

Suppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60 Re - Peat Company 0.85 10.80 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk - free rate?

Use the expected return-beta equation from the CAPM. What is the expected return for a stock if the risk-free rate is 4%, beta 0.9 and the expected return for the market portfolio is 6%? What is the risk-free rate if beta is 1.1, the expected return 6.3% and the expected return for the market portfolio is 6%?  What is beta if the risk-free rate is 4%, the expected return 11% and the expected return for the market is 6%?  What is the expected return for the market if the risk-free rate is 4%, beta 0.9 and the expected return 11%?

Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified.  Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.6 2.4 39 B 2.3 -0.7 9   Required: What is the expected return–beta relationship in this economy?

You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%

Solve this practice problem in the 2 pictures below

risk-free rate have to be if they are correctly priced? (See Problems 19 and 20.) 11.4 CAPM Suppose the risk-free rate is 8 percent. The expected return on the market is 14 percent. If a particular stock has a beta of .60, what is its expected return based on the CAPM? If another stock has an expected return of 20 percent, what must its beta be? (See Problem 13.)

REQUIRED RATE OF RETURN (Percent) Tool tip: Mouse over the points on the graph to see their coordinates. 16 20 12 Slope: 6 Y-Intercept: 2 0.4 0.8 1.2 1.6 2.0 RISK (Beta) New SML (?) The SML helps determine the level of risk aversion among Investors. The higher the level of risk aversion, the the slope of the SML. Which kind of stock is most affected by changes in risk aversion? (In other words, which stocks see the biggest change in their required returns?) Medium-beta stocks High-beta stocks Low-beta stocks All stocks affected the same, regardless of beta