Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Stock Beta Current Price Expected Price Expected Dividend
X 0.8 $12.50 $13.10 $0.80
Y 1.1 $ 8.25 $ 9.76 $0.20
Z 2.1 $25.70 $30.04 $0.00
The expected price is in one year. The expected market return is 11.5% and the risk-free rate is 4.5%.
According to the
Are the three stocks overvalued or undervalued in the market today
Given the
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- The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.4? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.7 offers an expected return of 9.0%, does it have a positive or negative NPV? d. If the market expects a return of 12.0% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. Market risk premium b. Return on investment % C. NPV d. Betaarrow_forwardYou are holding a portfolio with the following investments and betas: Stock Dollar investment Beta А $250,000 1.25 B 200,000 1.70 с 400,000 0.85 D 150,000 -0.25 Total investment $1,000,000 The market's required return is 10% and the risk-free rate is 3%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places. %arrow_forwardQuantitative Problem: You are holding a portfolio with the following investments and betas: Stock Beta A B Dollar investment $250,000 1.35 150,000 1.60 400,000 0.85 -0.35 misidered to have low risk. C D Total investment 200,000 $1,000,000 The market's required return is 10% and the risk-free rate is 5%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places. %arrow_forward
- Market Equilibrium and Common Stock Growth The required return on the market is 11.5% and the risk free rate is 5.5% APPR Inc. has a beta of 9 and is expected to pay a dividend of $3.00 per share at the end of the current year. Its current stock price is $50 per share. Assume the market is in equilibrium so the required rate of return equals the expected rate of return. Calculate the following Required rate of return of APPR Inc. stock Expected growth rate Dividend yield and capital gain yield b. Farrow_forwardTable solution providearrow_forwardQuantitative Problem: You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta A $300,000 1.2 B 200,000 1.6 C 400,000 0.75 D 100,000 -0.35 Total investment $1,000,000 The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.arrow_forward
- You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $196,000 294,000 490,000 Beta Expected rate of return 1.50 0.55 1.35 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 18 percent and that the risk-free rate is 9 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%) Beta of the portfolio %arrow_forwardd. Consider a well-diversified portfolio made up of stocks with the same beta as Intel. What are the beta and standard deviation of this portfolio’s return? The standard deviation of the market portfolio’s return is 20%. e. What is the expected rate of return on each stock? Use the capital asset pricing model with a market risk premium of 8%. The risk-free rate of interest is 4%.arrow_forward11. Changesto 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. (Tool tip: Mouse over the points in the graph to see their coordinates.) REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 8.0 4.0 O Do 0.5 ■ 1.0 RISK (Beta) 1.5 2.0 (?)arrow_forward
- Data for Solo Corporation is shown below. Now Solo has acquired some risky assets that cause its beta to increase by 30%. In addition, expected inflation increases by 2.00%. What is the stock's new required rate of return? Hint: Use the Capital Asset Pricing model equation. Briefly discuss your result. Market Beta is 1.00Initial required return (rs) 10.20%The market risk premium, RPM 6.00%Percentage increase in beta 30.00%Increase in inflation premium, IP 2.00%arrow_forwardCurrent Attempt in Progress You have just invested in a portfolio of three stocks. The amount of money that you invested in each stock and its beta are summarized below. Stock A B C Investment $190,000 285,000 475,000 Beta of the portfolio Beta Expected rate of return 1.45 0.60 Calculate the beta of the portfolio and use the Capital Asset Pricing Model (CAPM) to compute the expected rate of return for the portfolio. Assume that the expected rate of return on the market is 17 percent and that the risk-free rate is 6 percent. (Round beta answer to 3 decimal places, e.g. 52.750 and expected rate of return answer to 2 decimal places, e.g. 52.75%.) 1.30 %arrow_forwardSolve step by steparrow_forward
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