The level of the Syldavian market index is 21,300 at the start of the year and 25,800 at the end. The dividend yield on the index is4.8%.a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent roundedto 2 decimal places.)Return%b. If the interest rate is 6%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as apercent rounded to 2 decimal places.)Risk Premiumc. If the inflation rate is 8%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter youranswer as a percent rounded to 2 decimal places.)%Real Return

Part (a)As a first step let's assign a symbol to all the information we have in the question.I0 =…

Answered: The level of the Syldavian market index…

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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Give typing answer with explanation and conclusion to all parts The real risk-free rate, r*, is 2%, and inflation is expected to be 3.0% this year, 3.5% for the next two years; 4.0% the following year, and then 5.0% thereafter. The maturity risk premium is estimated to be 0.05%(t1), where t = number of years to maturity. Liquidity risk premium is 0.7%, default risk premium is 1%. - What are the Treasury yield for 3 years, and 6 years bonds? - What are the Corporate yield for 3 years, and 6 years bonds?
For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7 percent. You are also given the following covariance matrix for Securities J,K, andL. \table[[Covariance,Security J,Security K,Security L],[Security J,0.0012532,0.0010344,0.0019711],[Security K,0.0010344,0.0023717,0.0013558],[Security L,0.0019711,0.0013558,0.0048442]] Also assume that you form a portfolio by putting 0 percent of your funds in Security J, 40 percent of your funds in Security K, and 60 percent of your funds in Security L. Based on this information, determine the standard deviation of the resulting portfolio. ◻ 6.47% 5.27% 4.98% 5.82% 4.77%
3) Suppose that the price of a non-dividend-paying stock is $27, its vo itility is 20%, and the risk- free rate for all maturities is 6% per annum. Provide a table showing the relationship between profit and final stock price for a butterfly spread using European put option with strike prices of $20, $25, and $30 and a maturity of one year. Ignore the impact of time a e of money.
Consider a stock with a current price of P = $27.Suppose that over the next 6 months the stockprice will either go up by a factor of 1.41 or downby a factor of 0.71. Consider a call option on thestock with a strike price of $25 that expires in6 months. The risk-free rate is 6%.(1) Using the binomial model, what are the endingvalues of the stock price? What are the payoffsof the call option?
An analyst believes that inflation is going to increase by 2.0% 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 Tool tip: Mouse over the points on the graph to see their coordinates. REQUIRED RATE OF RETURN (Percent) 1.2 1.6 2.0 0.8 RISK (Beta) New SML ? The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the the slope of the SML. Which of the following statements best describes the shape of the SML if investors were not at all risk averse? O The SML would be a horizontal line. O The SML would have a negative slope. O The SML would have a positive slope, but the slope would be steeper than it would be if…
Required: Investors expect the market rate of return this year to be 19.00%. The expected rate of return on a stock with a beta of 1.2 is currently 22.80%. If the market return this year turns out to be 17.60%, how would you revise your expectation of the rate of return on the stock? (Do not round intermediate calculations. Round your answer to 1 decimal place.) Revised rate of return %
Assume the risk-free rate is 2.5% and the market risk premium is 8.0%. The beta of GE is 1.10. The dividend forecast for the next four years is as follows: 2017: $1.04 2018: $1.22 2019: $1.41 2020: $1.60 Using the dividend payout ratio (53%) and Return on Equity (19.5%), what is closest to the intrinsic value of GE stock using the dividend discount model? Question 9 options: a) $53.40 b) $140.00 c) $97.98 d) $75.83
Investors expect a 2.0% rate of inflation in the future. The real risk-free rate is 1.0%, and the market risk premium is 6.0%. Isbell Enterprises has a beta of 1.1. Calculate the required rate of return for Isbell Enterprises. (Answer as a percent with 2 decimal places. For example, 10 percent should be entered as 10.00. Do not use the % sign.)
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The level of the Syldavian market index is 21,600 at the start of the year and 26,100 at the end. The dividend yield on the index is 4.3%. a. What is the return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Retur b. If the interest rate is 5%, what is the risk premium over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Risk Premium % Real Return % c. If the inflation rate is 7%, what is the real return on the index over the year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) %
2 (CAPM and expected returns) a. Given the following holding-period returns, compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 0.83 and the risk-free rate is 9 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? a. Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is %. (Round to two decimal places.) The standard deviation for the Zemin Corporation is %. (Round to two decimal places.) Given the…
suppose the common stock of United Industries has a beta of 1.19 and an expected return of 11.8 percent. The risk-free rate of return is 3.5 percent while the inflation rate is 2.6 percent. What is the expected market risk premium? round to 2 decimal places,

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