Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Suppose rRF = 4%, rM = 11%, and bi = 1.5.
-
What is ri, the required
rate of return on Stock i? Round your answer to two decimal places.
% -
1. Now suppose rRF increases to 5%. The slope of the SML remains constant. How would this affect rM and ri?
- Both rM and ri will decrease by 1%.
- Both rM and ri will remain the same.
- Both rM and ri will increase by 1%.
- rM will remain the same and ri will increase by 1%.
- rM will increase by 1% and ri will remain the same.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Assume the expected return on the market is 14 percent and the risk-free rate is 4 percent. What is the expected return for a stock with a beta equal to 1.00? (Round answers to 2 decimal places, e.g. 15.25.) Expected return What is the market risk premium? (Round answers to 2 decimal places, e.g. 15.25.) Market risk premiumarrow_forwardWhat is the required return on an investment with a beta of 1.4 if the risk-free rate is 2.2 percent and the return on the market is 7.0 percent? Round your answer to two decimal places. %arrow_forwardSuppose S $96, K = $100, u = 1.03, d = 0.97, and R = 1.02. The risk-neutral probability, q, that the stock price will increase is: O -0.8000 O 0.1667 1.2000 O 0.8333arrow_forward
- Suppose that we have this information about the current market return and the risk-free return: • The market return is 12%, the risk free return is 8%, and the ẞ is 1.4. Calculate the cost of equity.arrow_forwardA company has a beta of 0.6, the T-bill rate is 4.3%, and the expected return on the market is 13.66%. What is its required rate of return? Do not round your intermediate calculations. Express as a percent rounded to two decimal places.arrow_forwardWhich statement is NOT correct? Multiple Choice O O O As the payout ratio goes up, the stock price also goes up. DDM can be used to calculate the terminal value. According to DDM, the discount rate should be greater than the growth rate of dividends. According to DDM formula, there is a one period lag between the times of stock price and the dividend payment. If the payout ratio is fixed, the growth rates of earnings and dividends are same.arrow_forward
- Suppose =5%, TH 13%, and b₁ = 1.9. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose nr increases to 6%. The slope of the SML remains constant. How would this affect г and n? I. Both г and n will increase by 1 percentage point. II. г will remain the same and r will increase by 1 percentage point. III. г will increase by 1 percentage point and r will remain the same. -Select- IV. Both г and n will decrease by 1 percentage point. V. Both г and will remain the same. 2. Now suppose FRF decreases to 4%. The slope of the SML remains constant. How would this affect and n? I. Both ' and n will decrease by 1 percentage point. II. г will decrease by 1 percentage point and r, will remain the same. III. г will remain the same and r will decrease by 1 percentage point. IV. Both and V. Both г and -Select- ✓ will increase by 1 percentage point. will remain the same. c. 1. Now assume that RF remains at 5%, but г increases to 14%. The…arrow_forwardthe risk free rate is 3% and the market premium rM rRF is 4%. stock A has a beta of 1.2, and stock B has a beta of 0.8. what is the required rate of return on each stock? assume that investors become less willing to take risk (i.e, they become more risk averse), so the market risk premium rises from 4% to 6%. Assume that the risk free rate remains constant. what effect will this have on the required rates of return on the two stocks?arrow_forwardThe risk-free rate is 1.13% and the market risk premium is 6.26%. A stock with a β of 0.84 will have an expected return of ____%. Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))arrow_forward
- Suppose 5%, TH 13%, and b₁ = 1.9. a. What is n, the required rate of return on Stock I? Round your answer to one decimal place. % b. 1. Now suppose mr increases to 6%. The slope of the SML remains constant. How would this affect and n? 1. Both г and will increase by 1 percentage point. II. г will remain the same and n will increase by 1 percentage point. III. will increase by 1 percentage point and n will remain the same. IV. Both г and n will decrease by 1 percentage point. -Select- V. Both г and will remain the same. 2. Now suppose гRF decreases to 4%. The slope of the SML remains constant. How would this affect and n? I. Both and will decrease by 1 percentage point. II. г will decrease by 1 percentage point and r, will remain the same. III. г will remain the same and r will decrease by 1 percentage point. IV. Both г and n will increase by 1 percentage point. -Select- V. Both г and will remain the same. c. 1. Now assume that RF remains at 5%, but г increases to 14%. The slope of the…arrow_forwardIf D1 = $1.15, g (which is constant) = 5.24%, and P0 = $56.45, what is the stock's expected capital gains yield for the coming year? Please work out the problem, do not use excel.arrow_forwardRequired Rate of Return Suppose rRF = 6%, rM = 11%, and rA = 10%. Calculate Stock A's beta. Round your answer to one decimal place. If Stock A's beta were 1.4, then what would be A's new required rate of return? Round your answer to one decimal place. %arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author: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 ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
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