The estimated beta for Caterpillar Inc. is 135. The risk free rate of return is 3 percent and the Equity Risk Premium is 4 percent. What is the required rate of return for CAT using the CAPM? Group of answer choices 8.496 12.396 15.26 10.196

Q: Dhofar Methanol has a Beta= 1.8. The risk free rate on a treasury bill is currently 3.5% and the…

A: Cost of equity means cost of raising the money from common stock holder. Formula for cost of equity…

Q: SkyHi Corp.'s beta is 1.2. The expected market return is 6.4%. The risk-free rate is 3.7%. Find…

A: Capital Asset Pricing Model(CAPM) is used to find out cost of equity or expected return of a risky…

Q: The CRT Co. has a beta of 1.6 The expected market return is 9.5 percent and the risk free rate of…

A: Given that;Expected market return is 9.5%Risk free rate is 3.2%Beta is 1.6

Q: Assume that you are given the following historical returns for the Market and Security J. Also…

A: To find out the expected return of security J for coming year as per CAPM, we are required to find…

Q: The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors. Estimated…

A: Actual return = 9.5%/100 = 0.0950 in decimalsRisk-free rate = 2.6%/100 = 0.0260 in decimalsBeta…

Q: Suppose that Company ABC has a beta of .92.  The expected return on the market is 13% and the market…

A: Market return (Rm) = 0.13Market risk premium (Mp) = 0.102Beta of the stock (b) = 0.92Expected return…

Q: The market risk premium for next period is 8.40% and the risk-free rate is 2.50%. Stock Z has a beta…

A: The ratio that shows the required return from an investment for each unit of risk is called the…

Q: Suppose we estimate SBUX to have β=0.80 when the market premium is 9% and the risk free rate is 3%.…

A: Solution:- Capital Asset Pricing Model (CAPM) is the equity model, which computes required return of…

Q: Currently the risk-free rate equals 5% and the expected return on the market portfolio equals 11%.…

A: The risk-reward ratio is a fundamental concept in finance and investing that assesses the potential…

Q: Your estimate of the market risk premium is 5%. The risk-free rate of return is 3%, and General…

A: General Motors has the following given details:Market Risk premium (Rm-Rf) = 5%Risk free rate (Rf)=…

Q: What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk-free…

A: Using CAPM

Q: Dhofar Energy Services has a Beta = 1.18 The risk-free rate on a treasury bill is currently 4.4% and…

A: As per Capital Asset Pricing Model(CAPM) Cost of equity = Risk Free Rate + (Market Return -Risk Free…

Q: Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180…

A: Pete corp:Beta = 1.70Expected Return = 0.180Repete Co. :Beta = 1.39Expected return = 0.153

Q: Far Horizon Journeys has an expected return of 9.90%, the risk-free rate is 2.20%, and the market…

A: Expected Return = 9.90% Risk Free Rate = 2.20% Market Risk Premium = 6.85%   Beta = ?

Q: Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 8.50%, and the risk-free…

A: Fiske Roofing Supplies stock has beta 1.23, required return is 8.50% risk free rate is 4.30% , then…

Q: If an investment’s expected return (mean return) does not plot on the SML, what does it show?…

A: Security market line (SML) is a grapical representation of the Capital Asset Pricing Model. All the…

Q: Dhofar Silicon Services has a B(Beta)= 1.4.The risk free rate on a treasury bill is currently 8.2%…

A: The Correct option is OPTION-C. This problem is related to Capital Asset Pricing Model (CAPM)…

Q: a. A company wants to estimate its required rate of return using the Capital Asset Pricing Model…

A: The minimum return that an investor will accept on investment is called the required rate of return.…

Q: Beta Volatility SFT 0.45 20% rd -E egle 0.75 18% 1.05 35% 25% 1.20 m has the most total risk? SE…

A: Risk is Measured by Beta of stock and more Beta the stock is more risky.

Q: Walmart's beta is 0.7. The market risk premium is 4.2 %. The appropriate risk-free rate is 0.04 %.…

A: Given information: Beta : 0.7 Market risk premium : 4.2% Risk free rate : 0.04%

Q: How to set-up this problem? Refer to the following example for part i) Risk-free rate of return = 3%…

A:

Q: The risk-free rate is 4%%. The market risk-premium is 79%. The beta is 20. What is the expected rate…

A: Financial management consists of directing, planning, organizing and controlling of financial…

Q: Company XYZ has a CAPM beta of 1.5. The expected return on the market is 20% and the risk-free rate…

A: Expected return can be calculated by using CAPM equation given below Expected return =Risk free…

Q: If a firm's beta is 1.1, the risk-free rate is 6%, and the expected return on the market is 14%,…

A: Details given are : Beta = 1.1 Risk free rate = 6% Expected market return = 14% We need to compute…

Q: Assume that Blast Company has a Beta of 0.85, the Risk Free Rate is 2.0% and the Expected Market…

A: We Require to calculate required rate of return for Blast company in this question. We can calculate…

Q: Dhofar Silicon Services has a Beta = 2.42 The risk free rate on a treasury bill is currently 8.2%…

A: Beta = 2.42 Risk free rate = 8.2% Market return = 16%

Q: Chipotle's beta is 0.95, the current risk-free rate is 2% and the market risk premium is 7%. What is…

A: We are require to calculate the Chipotle's cost of equity: Cost of equity can be calculated using…

Q: What return would you expect if the risk-free rate of return was 5 per cent, the beta risk is 1.5,…

A: To assess market behaviour, one uses the Capital Asset Pricing Model (CAPM). The concept is based on…

Q: Consider the following information for Vine Inc.: Beta: 1.39 Risk-free rate: 7% Market Risk Premium:…

A: According to Capital asset pricing model ( CAPM), ke = Rf  + [beta × ( Rm - Rf)] Where, ke = cost of…

Q: Your estimate of the market risk premium is 8%. The risk−free rate of return is 3.1% and General…

A: CAPM refers to the relationship between the expected return of the stock and the risk associated…

Q: Assume that the risk-free interest rate is 3%, the market rate of return is 7% and the beta for…

A: The comparison of the whole market with the systematic risk or volatility of a stock or the…

Q: The following data have been developed for Ding Corp. State Market Return 1 2 3 4 Probability 0.10…

A: Capital Asset Pricing Model is used to determine the required return on the stock which is risk free…

Q: Dhofar Energy Services has a Beta = 1  The risk-free rate on a treasury bill is currently 4.4% and…

A: By Capital asset pricing model: Cost of equity = Rf + ß*(Rm - Rf) Rm = (Cost of equity - Rf)/ß + Rf

Q: am. 117.

A: Given:Expected return of the healthcare stock, E(R) = 8%Beta of the healthcare stock, β = 1Expected…

Q: Fiske Roofing Supplies' stock has a beta of 1.23, its required return is 9.50%, and the risk-free…

A: Stock beta is 1.23 Required return is 9.50% risk free rate is 4.30%   To Find: Required rate of…

Q: Karen Kay, a portfolio manager at Collins Asset Management, is using the capital asset pricing model…

A: The objective of the question is to calculate the expected return and alpha for each stock using the…

Q: Walmart's beta is 0.7. The market risk premium is 4.2 %. The appropriate risk-free rate is 0.04 %.…

A: Given information: Beta : 0.7 Market risk premium : 4.2% Risk free rate : 0.04%

Q: Q21. Suppose your expectations regarding the stock price are as follows: Time Return 1 0.10 2 -0.15…

A:

Q: Assume you have an optimal risky portfolio with an expected return of 17% and a standard deviation…

A: Given: Expected return = 17% Standard deviation = 27% Risk free rate = 5% Risk aversion = 2

Q: 2- Assume that the market has an expected return of 12% and volatility (standard deviation) of 20%.…

A: First we'll calculate Beta for company X Beta=Covariance(X,M)VarianceM Beta could also be calculated…

Q: Refer to i and j in the picture.  I need answers to those with the steps.

A: i) Calculating the stock's required rate of return:

Q: Help me with part E please. Thank you so much a) Discuss the main assumptions of the Capital Asset…

A: You has asked for help in part (e). Hence, the solution focuses only on part (e). In this part, the…

Q: What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

A: Required Rate of Return for Stock: It is a minimum acceptable rate of return for equity investors…

Q: The risk-free rate is 3%, the market risk premium (MRP) is 8%, and the Beta of Lotsa Dough common…

A: Risk free rate = 3% Market risk premium = 8% Beta = 0.90

Q: Dhofar Energy Services has a Beta = 0.93 The risk - free rate on a treasury bill is currently 4.4%…

A: Given: Beta =0.93Risk free rate(Rf) =4.4%Cost of equity(Ke) =20.70%

Q: What is the expected market return if the expected return on STC is 20 percent, its beta is 1.5, and…

A: The Capital Asset Pricing Model (CAPM) is a financial model that helps investors understand the…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.