You want to invest in Costco Stock and would like to know the potential returns of the stock. You notice that COST has a beta of 0.67. You look up the 10-year treasury bond Yield to Maturity (YTM) and notice the going rate of return on T-Bills is 3.78%. You are given that the market return for COST stock and its sector is 5%. What is the estimated rate of return on COS

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A: Here, MonthS CorpMarket12%1%2-1%2%3-1%2%41%1%56%5%66%1%

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A: Cost of equity = Rf + Beta * ( Rm - Rf ) = 2.70% + 0.91 * 9.50% = 2.70% + 8.645% = 11.345%

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Q: Expected dividend yield 5%

A: Ans.   D.stock X pays higher dividend per share than stock y

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A:

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.