The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 5%. Use a 7% risk premium for the market portfolio. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company Caterpillar Apple Johnson & Johnson Consolidated Edison Beta 1.73 1.37 0.56 0.28 Cost of Capital % % % %

The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 5%. Use a 7% risk premium for the market portfolio. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company Caterpillar Apple Johnson & Johnson Consolidated Edison Beta 1.73 1.37 0.56 0.28 Cost of Capital % % % %

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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Using the equity asset valuation model (CAPM) equation, determine the required return for the shares of the following companies, if the market return is 7.50% (Rm = 7.50%) and the risk-free asset return is 1.25% (RF = 1.25%). You must show all counts. Stock Beta SKT 0.65 COST 0.90 SU 1.42 AMZN 1.57 V 0.94
The following table shows betas for several companies. Calculate each stock’s expected rate of return using the CAPM. Assume the risk-free rate of interest is 4%. Use a 7% risk premium for the market portfolio. Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Company Beta Cost of Capital Caterpillar 0.98 % Apple 1.35 % Johnson & Johnson 0.69 % Consolidated Edison 0.13 %
The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 6%. Use a 8% risk premium for the market portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Company Beta Cost of Capital Caterpillar 1.66 % Apple 1.30 % Johnson & Johnson 0.49 % Consolidated Edison 0.21 %
Ran Company wants to determine its cost of common stock equity using the CAPM. The company's investment advisors indicate that the firm’s beta is equals to 1.3;the risk-free rate is 6%; and the market return is 10%. (Do not round off between computations. Round off the final answer to two decimal places. Example of writing your answer 2.58%)
A stock has a Beta of 1.0. The risk-free rate is 4.7%, and the Market Risk Premium is estimated at 7.4%. The firm's cost of common equity, Re, is _____%. Round your final answer to 2 decimal places (example: enter 12.34 for 12.34%), but do not round any intermediate work in the process.
A stock has a Beta of 1.13. The risk-free rate is 3.2%, and the Market Risk Premium is estimated at 6.4%. The firm's cost of common equity, RE, is _____%. Do not round any intermediate work, but round your final answer to 2 decimal places (example: enter 12.34 for 12.34%). Do not enter the % sign.
The common stock of Anthony Steel has a beta of 1.1. The risk-free rate is 5 percent and the market risk premium (rm - rf) is 5 percent. What is the company's cost of common stock, rs? Express your answer in percentage (without the % sign) and round it to two decimal places.
Suppose that you have estimated the CAPM betas for the equity shares of the following two firms: Levi Strauss & Co. ( NYSE: LEVI): \beta ^ LEVI = 1.10 Tesla Inc. (Nasdaq: TSLA) : \beta ^ TSLA = 1.90 Assume that the risk - free rate is estimated at 4%, stable over the entire CAPM estimation period, and will remain in the foreseeable future. Answer questions a) and b) below. (Lecture notes p.12, pp.15-17) Suppose the expected return on S&P 500 index, a proxy for the market portfolio, is estimated at 17%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results): Suppose the market risk premium is estimated at 9%. Find the CAPM required returns on equity shares of Levi's and Tesla, respectively. Answer (show the steps/calculation toward your results):
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.0%+ 0.40RM + eA RB = -1.8% + 0.9RM + eB OM 15%; R-squareд = 0.30; R-square= 0.22 = What is the standard deviation of each stock? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Stock A Stock B Standard Deviation % %
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: REQUIRED RATE OF RETURN (Percent) 20.0 16.0 12.0 1,8 Return on HC's Stock 8.0 4.0 0 0 0.5 1.0 1.5 2.0 RISK (Beta) CAPM Elements Risk-free rate (RF) Market risk premium (RPM) Happy Corp. stock's beta Required rate of return on Happy Corp. stock Value An analyst believes that inflation is going to increase by 3.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is
The reward-to-risk ratio for Stock X, in decimal form, is ______. Round your answer to 3 decimal places (example: if your answer is .04567, you should enter .046). Margin of error for correct responses: +/- .002. expected return (implied by market price) Beta Stock X 9.7% 0.87 S&P500 10% ? T-bonds 3% ?
Hoolahan Corporation's common stock has a beta of 1.29. Assume the risk-free rate is 5.4 percent and the expected return on the market is 12.9 percent. What is the company's cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity %

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