Suppose that the risk-free rate is 3% and the expected return on the market portfolio is 6%. A certain stock has a beta of 1.0. You believe that over the next year thisstock will produce a return of 11%. Would you say that the stock is overpriced or underpriced?According to CAPM, the return that the stock should earn is%. (Enter as a percentage and round to one decimal place.)

To determine if the stock is overpriced or underpriced according to the Capital Asset Pricing Model…

Answered: Suppose that the risk-free rate is 3%…

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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Similar questions

A stock has an expected return of 11.4%, the risk-free rate is 5.5%, and the market risk premium is 11%. What must the beta of this stock be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose the risk-free return is 3.7% and the market portfolio has an expected return of 8.8% and a standard deviation of 16%. Johnson & Johnson Corporation stock has a beta of 0.73. What is its expected return (Round to 2 decimal places)
Stock A has a beta of 1, the risk-free rate is 4% and the return on the market is 9%. If the market risk premium changes by 7%, by how much will the required return on Stock A change? (i.e. required return after change - required return before the change) answer format: show your answer in percent (without the % sign) and to 1 decimal place. For example, 12.56 should be shown as 12.6
The expected return on the market is 15%, the risk-free rate is 8o/o, and the beta for Stock B is 0.8. Compute the rate of return that would be expected (required) on this stock.
Stock R has a beta of 2.0, Stock S has a beta of 0.35, the required return on an average stock is 9%, and the risk-free rate of return is 3%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places. %
Suppose Autodesk stock has a beta of 2.10, whereas Costco stock has a beta of 0.72. If the risk-free interest rate is 4.5% and the expected return of the market portfolio is 13.5%, what is the expected return of a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according to the CAPM? The expected return is %. (Round to two decimal places.)
JaiLai Cos. stock has a beta of 0.6, the current risk-free rate is 6.0 percent, and the expected return on the market is 10 percent.What is JaiLai’s cost of equity? (Round your answer to 2 decimal places.)
The risk-free rate of return is 1 percent, and the expected return on the market is 7.1 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 7 percent, and a current dividend of $1.50 a share. Do not round intermediate calculations. Round your answers to the nearest cent. What should be the market price of the stock? $ If the current market price of the stock is $55.00, what should you do? The stock be purchased. If the expected return on the market rises to 12.4 percent and the other variables remain constant, what will be the value of the stock? $ If the risk-free return rises to 2 percent and the return on the market rises to 13 percent, what will be the value of the stock? $ If the beta coefficient falls to 1.3 and the other variables remain constant, what will be the value of the stock? $ Explain why the stock’s value changes in c through e. The increase in the return on the market the…
A stock has a beta of 0.81, the expected return on the market is 11%, and the risk- free rate is 10.5%. What must the expected return on this stock be? (Do not round intermediate calculations. Enter answer as a percent rounded to 2 decimal places.)
A stock has a beta of 1.4 when the risk premium is 6.2%. If the risk free rate is 2.4, what is the stock's fair return? Convert to a percent and round to two decimal places. a. 2.4+1.4 b. 6.2*1.4+2.4 c. 2.4+6.2
A stock has a beta of 1.14, the expected return on the market is 10.8 percent, and the risk- free rate is 4.55 percent. What must the expected return on this stock be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %

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