You are examining three different shares. Share A has expected return 6.20%, beta 0.47, and volatility 12.00%. Share B has expected return 4.90%, beta 0.19, and volatility 20.00%. Finally, share C has expected return 9.60%, beta 0.84, and volatility 30.00%. The risk free rate is 2.90%, while the market price of risk is 8.50%. According to the CAPM, which share is undervalued?
Q: Jack plans to expand his firm 6 years from now so he plans to make quarterly deposits of P100,000 in…
A: To Find: Amount to Withdraw at the end of year 6
Q: Using the returns shown above, calculate the arithmetic average returns, the variances, and the…
A: Following are the formulas: Arithmetic average return = (Sum of all observations/Number of…
Q: A group of friends decided to save money so they can travel out of the country after 5 years. The…
A:
Q: Consider a mutual fund with $200 million in assets at the start of the year and with 10 million…
A: Total Assets at the Start of the Year = $200 Millions Number of Shares Outstanding = $10 Millions…
Q: Pedro, who deposited P500,000.00 today with a financial Institution M, agreed with the latter that…
A: Monthly interest rate = Annual interest rate / Number of months in a year = 8%12 = 0.666666667%…
Q: Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for…
A: Machinery cost is $1.24million Life of Machine is 10 years Depriciation per year = Machine cost…
Q: You have invested in two shares, Tinkle.com and Circumbendibus Wheels. Tinkle.com has volatility…
A: To Find: Volatility of portfolio
Q: A benchmark index has three stocks priced at $50, $26, and $30. The number of outstanding shares for…
A: Index value today= (Market capitalization today/Market capitalization on previous day)*Index value…
Q: Now explain this meaning of G(s, 1 Forts, G(s, t) is the value at time t that will grow to equal 1…
A: Present value of a future amount With interest rate (r), period (n) and future value (FV), the…
Q: 1. The owner of a company plans to expand his firm 6 years from now so he plans to make quarterly…
A: Cash Flow Diagram: A financial tool called a cash-flow diagram is used to show the cashflows related…
Q: An airline is considering two types of engine systems for use in its planes. Each has the same life…
A: Equivalent annual cost refers to the cost that is owned, operated, and maintained for an asset in…
Q: Almirah wants to have P50,000 at the end of 4 years for her graduation expenses and blow-out party.…
A: Investor always prefers compounding interest rather than investing in investments that offer simple…
Q: Mr. Cruz borrowed P50,000.00 with interest at the rate of 15% payable ar The debt will be paid,…
A: Loans are paid by the equal amount of installments that carry the payment of interest and payment of…
Q: A washer dryer combination can be purchased from a department store by making monthly payments of…
A: Given: Monthly payment = $62.25 Interest rate = 24% Years = 3
Q: Which of the following is (are) example(s) of a Eurocurrency market transaction? A bank in Sydney…
A: The Eurocurrency market transactions refer to the transfer or deposit of a currency outside of its…
Q: a) How much is the principal repayment in the first year for a USD 100'000 annuity loan with an…
A: Data given: Loan amount= USD 100,000 Interest rate= 2.5% (assumed compounded annually) n=4 years
Q: Jenny Enterprises has just entered a lease agreement for a new manufacturing facility. Under the…
A: Monthly payment (C) = $21,500 Monthly interest rate (r) = 0.0072 (i.e. 0.0864 * 12) Monthly period…
Q: On October 1, 2020 John's Barber Shop borrowed $14,000 at 8% interest, with principal and interest…
A: Interest will be booked on proportionate basis, which means that the interest shall be booked for…
Q: You are examining three different shares. Share A has expected return 5.20 %, beta 0.47, and…
A: Capital Asset pricing Model helps in determining the fair return of the investment. It determines…
Q: Hanson corporation's present year ROE remained at last year's 14% level, while the profit margir…
A: Return on Equity = Profit margin*Asset turnover ratio*leverage ratio Asset turnover ratio = Return…
Q: Use PMT= to determine the regular payment amount, rounded to the nearest dollar. Your credit care…
A: As per the given information: Loan amount (P)- $4900Interest rate (r) - 11.5%Payment frequency (n) -…
Q: You have $400 and a bank is offering 3.5% interest on deposits. If you deposit the money in the…
A: The FV of an asset is the value that the asset acquires assuming that it grows at a fixed rate for a…
Q: A company estimates that it will need $375,000 in 11 years to replace an important machine. If it…
A: We need to use future value of annuity formula to calculate payment size PMT =FVn(1+i)n -1i Where…
Q: Using the information in the tables above, please calculate the current market conversion price and…
A: Convertible bonds are bonds that has the pay coupons and can be converted to equity. Only if the…
Q: Given an interest rate of 9 percent per year, what is the value at date t-6 of a perpetual stream of…
A: Interest rate (i) = 0.09 Annual payment (C) = $1200 Period from year 6 to 14 (n) = 8 Value at t6 = ?…
Q: Ningbo Industrial Concepts Incorporated Initial stock price $115.00 Exercise…
A: Stock Price is $115 Exercise Price is $115 Call Price is $4.75 Put Price is $4.50 To Find: Dollar…
Q: A friend asks to borrow $53 from you and in return will pay you $56 in one year. If your bank is…
A: Solution:- When an amount is deposited somewhere, it earns interest on it. The amount initially…
Q: Mr. Padilla agrees to pay P1,300.00 at the end of each month for 20 years, in purchasing a house.…
A: The PV of an asset refers to the value of all its future cash flows discounted at an assumed rate of…
Q: examples of financial decisions faced by companies and individuals
A: Financial decisions are very important in the life and also in business also but there is need of…
Q: What is the accumulated value at the end of 10 years if Php 100 is invested at a rate of 12% per…
A: Here, Present value (PV) = P100 Interest rate (RATE) = 12% Time period (NPER) = 10 years To Find:…
Q: The last step in the financial planning process is to Group of answer choices use financial…
A: Financial planning is very important tool used for managing the business finance. Under this, all…
Q: Sinclair Manufacturing and Boswell Brothers Incorporated are both involved in the production of…
A: Degree of Combined leverage is used to calculate the optimum capital structure of the firm by…
Q: Determine the approximate monthly cost of going to lunch every Friday, averaging $8.15. (Assume four…
A: Average Cost per week is $8.15 Total number of weeks in a month are 4 To Find: Approximate Monthly…
Q: Over the next year, the stock market will either be a bull market or a bear market. The probability…
A: The Sharpe ratio is used by investors to measure a company’s performance by calculating its…
Q: Karl borrows P200,000 and agrees to pay the principal and interest by making equal payments at the…
A: A loan refers to the amount borrowed from one person to the other person in exchange for the…
Q: inflation method of finding pv?
A: Solution:- When some amount of money is invested in real estate, the price of real estate either…
Q: M purchased a small lot in a subdivision, paying P200,000 down and promising to pay P15.000 every 3…
A: r = 12%/4 = 3% t = 10 years*4 = 40 Quarterly payments = P15,000 Loan value = 1-1+r-tr×Quarterly…
Q: To secure the future of his son, a man plan to deposit P50,000 in a bank account every quarter for 5…
A: Future value of annuity means that deposits are made at the beginning of the period and one period…
Q: 6.Wainright Co. has identified an investment project with the following cash flows. Year…
A: Years Cash flows 1 720 2 930 3 1190 4 1275 We are given these cash flows for an…
Q: Given the data in the above table, calculate the share exchange ratio:
A: Information Provided: Target share price = $15.50 Takeover Premium = 10% Acquirer share price =…
Q: Question: As data is attached to the image. You are required to comment/analyze on Feroze 1888 Mills…
A: Before investing in a company the potential investors analyze various aspects such as debt ratio,…
Q: The company has a project with a 5-year life that requires an initial investment of $200,000, and is…
A: Data given: Initial investment = $200,000 Annual cash flows= $62,500 n=5 years Rate of return= 8%
Q: Theresa invested $5,000 in an account she expects will earn 8% annually. Approximately how many…
A: Time value of money concept says that an amount invested today will have more value in future due to…
Q: You have been offered a unique investment opportunity. If you invest $10,400 today, you will receive…
A: NPV = Present value of future cash inflows - Initial investment Calculation of present value of…
Q: An Engineering Research foundation wishes to set up a trust fund earning 10% compounded annually to…
A: The PV analysis is used to measure the profitability of a project by discounting its future cash…
Q: Deep Excavating Inc. is purchasing a bulldozer. The equipment has a price of $106,000.…
A: The concept of TVM states that money has an interest-earning capacity which makes the money earned…
Q: Assume a firm's inventory level of $11,000 represents 32 days' sales. Required: a. What is the…
A: The inventory turnover ratio indicates how many times the inventory was sold. It also indicates the…
Q: Mike and Teresa have a monthly gross income of $6,167, but they pay $502 per month in taxes. They…
A: Debt service ratio is one of the ratio related to usage of debt. This is the ratio between debt…
Q: Bronco Electronics' current assets consist of cash, short-term investments, accounts receivable, and…
A: Current ratio = Current asset / Current liability Current ratio = 3.6 Acid test ratio = (Current…
Q: A put option on MSFT (Microsoft) stock has the following terms: exercise/ strike price is $305;…
A:
You are examining three different shares. Share A has expected return 6.20%, beta 0.47, and volatility 12.00%. Share B has expected return 4.90%, beta 0.19, and volatility 20.00%. Finally, share C has expected return 9.60%, beta 0.84, and volatility 30.00%. The risk free rate is 2.90%, while the market price of risk is 8.50%. According to the CAPM, which share is undervalued?
Step by step
Solved in 2 steps
- You are examining three different shares. Share A has expected return 8.40%, beta 1.46, and volatility 27.00%. Share B has expected return 1.40%, beta -0.04, and volatility 33.00%. Finally, share C has expected return 5.90%, beta 1.00, and volatility 14.00%. The risk free rate is 1.30%, while the market price of risk is 5.10%. According to the CAPM, which share is undervalued? A B C None of the shares is undervaluedSuppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.Suppose that the risk-free rate r, = 0.03, the expected market return uM = 0.11, and the market volatility oM = 0.16. Stock A has beta = 1.2 and diversifiable risk o̟ = 0.08. Stock B has beta = 0.8 and 0, = 0.03. Stock C has beta = 1.5 and o̟ = 0.1. Consider a portfolio P which is 45% in Stock A, 25% in Stock B, and 30% in Stock C. (a) Find the value of beta for this portfolio. (b) Assuming CAPM, find the portfolio's expected return µp. (c) Find the standard deviation of the portfolio's systematic (or mar- ket) risk. (d) Find the standard deviation o, of the diversifiable risk of P. (You may assume that the diversifiable risks of A,B, and C are uncorrelated.)
- Suppose the market risk premium is 9 % and also that the standard deviation of returns on the market portfolio is 0.26 . Further assume that the correlation between the returns on ABX (Barrick Gold) stock and returns on the market portfolio is 0.62 , while the standard deviation of returns on ABX stock is 0.36 . Finally assume that the risk-free rate is 2 %. Under the CAPM, what is the expected return on ABX stock? (write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)ou are examining three different shares. Share A has expected return 5.40%, beta 0.41, and volatility 11.00%. Share B has expected return 6.90%, beta 0.67, and volatility 23.00%. Finally, share C has expected return 7.10%, beta 0.65, and volatility 22.00%. The risk free rate is 2.90%, while the market price of risk is 7.40%. According to the CAPM, which share is undervalued? A B C None of the shares is undervaluedThe expected return and standard deviation of Stock A are 12% and 24%, respectively. The expected return and standard deviation of Stock B are 5% and 19%, respectively. The correlation between the two stocks is 0.4. The risk-free rate in the economy is 1%. A. What is the Sharpe ratio for Stock A and Stock B? Show your calculation steps briefly and clearly. B. Calculate the optimal risky portfolio P*. You do not need to show your calculation steps for this subquestion. C. Now suppose that the correlation between the two stocks is -0.2 (instead of 0.4). Re-calculate the optimal risky portfolio P* and compare it to your answer in Part B. What do you observe? You do not need to show your calculation steps for this subquestion. D. Using the results above, briefly explain why investors might still consider investing in stocks with a (relatively) low Sharpe ratio as a part of their portfolio.
- Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A(A) to beta of B(B).How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
- Suppose the expected return for the market portfolio and risk-free rate are 13 percent and 3 percent respectively. Stocks A, B, and C have Treynor measures of 0.24, 0.16, and 0.11, respectively. Based on this information, an investor should ______?Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 4 percent and the expected return for the market is 17 percent. STOCK BETA A 0.63 B 0.95 C 1.48 a. Using the CAPM, the required rate of return for stock A is B.Using the CAPM, the required rate of return for stock b is C.Using the CAPM, the required rate of return for stock C is (Round to two decimal places.)Suppose that the capital asset pricing model (CAPM) applies. The risk premium of a stock is 3 percent and the risk premium of the market portfolio is 2. The standard deviation of the market portfo- lio is 6. Compute the covariance between the stock and the market portfolio.