Intermediate Financial Management
14th Edition
ISBN: 9780357516782
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 2, Problem 7P
a)
Summary Introduction
To compute: The beta for stock A.
b)
Summary Introduction
To compute: The new required
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Suppose rRF = 4%, rM = 9%, and rA = 10%.
Calculate Stock A's beta. Round your answer to one decimal place.
If Stock A's beta were 1.6, then what would be A's new required rate of return? Round your answer to one decimal place.
%
Suppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%.
a. Calculate Stock B’s beta.
b. If Stock B’s beta were 0.80, what would be its new rate of return?
Required Rate of Return
Suppose rRF = 3%, rM = 8%, and rA = 7%.
Calculate Stock A's beta. Round your answer to one decimal place.
If Stock A's beta were 1.1, then what would be A's new required rate of return? Round your answer to one decimal place.
%
Chapter 2 Solutions
Intermediate Financial Management
Ch. 2 - Prob. 2QCh. 2 - Security A has an expected return of 7%, a...Ch. 2 - Prob. 4QCh. 2 - Prob. 5QCh. 2 - Your investment club has only two stocks in its...Ch. 2 - AA Corporations stock has a beta of 0.8. The...Ch. 2 - Suppose that the risk-free rate is 5% and that the...Ch. 2 - Prob. 5PCh. 2 - The market and Stock J have the following...Ch. 2 - Prob. 7P
Ch. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - Prob. 11PCh. 2 - Stock R has a beta of 1.5, Stock S has a beta of...Ch. 2 - Prob. 1MCCh. 2 - Prob. 2MCCh. 2 - Prob. 3MCCh. 2 - What is the stand-alone risk? Use the scenario...Ch. 2 - Prob. 5MCCh. 2 - Prob. 6MCCh. 2 - Prob. 7MCCh. 2 - Prob. 8MCCh. 2 - Prob. 9MCCh. 2 - Prob. 10MCCh. 2 - Prob. 11MCCh. 2 - Prob. 12MCCh. 2 - Prob. 13MCCh. 2 - Prob. 14MCCh. 2 - Prob. 15MCCh. 2 - Prob. 16MCCh. 2 - Prob. 17MCCh. 2 - Prob. 18MC
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- Suppose risk-free rate of return = 2%, market return = 7%, and Stock B’s return = 11%. Calcuate Stock B’s beta. If Stock B’s beta were 0.80, what would be its new rate of return?arrow_forwardSuppose stock A's return is related to the market return by: RetA=0.6*Market Return + 0.04* (Market Return)² What is the change in stock A given a change in the market return? Suppose stock B's return is related to the market return by: RetB=0.6*Market Return What is the difference in returns between A and B if the market return is 5%? What is the difference if the market return is -5%?arrow_forwardSuppose the risk free rate (rfr) = 5%, average %3D market return (rm) = 10%, and the required or expected rate of return E(r) = 12% for %3D TNG stock. (a) Calculate the Beta for TNG. (b) If TNG's Beta = 2.0, what would be TNG's new required or expected rate of return (r)?arrow_forward
- Suppose the CAPM is true. Consider two assets, X and Y, and the market M. Suppose cov(X,M) = .3, cov(Y,M) = .5. %3D (a) Is the expected return higher on X or Y? (b) Suppose var(M) = 1.5, what are the betas of X and Y? (c) Suppose the expected market return is 20% and the risk free rate is 5%, what is the expected returns of X and Y?. (d) Given your analysis in (a)-(c), what type of investor would prefer asset X to asset Y?arrow_forwardSuppose 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.arrow_forward(d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates of return of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.arrow_forward
- Required Rate of ReturnSuppose rRF 5 5%, rM 5 10%, and rA 5 12%.a. Calculate Stock A’s beta.b. If Stock A’s beta were 2.0, then what would be A’s new required rate ofreturn?arrow_forwardThe risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is the required rate of return on the stock, E(Ri)? Use the CAPM equation.arrow_forwardSuppose TRF = 4%, TM = 9%, and b = 1.1. a. What is n, the required rate of return on Stock i? Round your answer to one decimal place. % b. 1. Now suppose rar increases to 5%. The slope of the SML remains constant. How would this affect ry and n? I. ry will increase by 1 percentage point and n will remain the same. II. Both ry and r, will decrease by 1 percentage point. III. Both rm and r, will remain the same.. IV. Both r and r, will increase by 1 percentage point. V. r will remain the same and r, will increase by 1 percentage point. -Select- v 2. Now suppose rar decreases to 3%. The slope of the SML remains constant. How would this affect ry and n? I. TM will decrease by 1 percentage point and n will remain the same. II. rs will remain the same and n will decrease by 1 percentage point. III. Both ry and r, will increase by 1 percentage point. IV. Both ry and r, will remain the same. V. Both ry and r, will decrease by 1 percentage point. Selectarrow_forward
- (d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates ofreturn of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.arrow_forwardConsider an event study of the following stock. Realised return Market return t = 0 (event day) 0.1 0.1 t =1 0.06 0.04 t = 2 0.03 0.02 t = 3 0.015 0.01 Suppose that the estimated market model is . What is the CAR (cumulative abnormal returns) for t = 3?arrow_forward2. Required Rate of Return Suppose TRF = 4%, FM 9%, and FA = 8%. (a) Calculate Stock A's beta. Round your answer to one decimal place. - (b) If Stock A's beta were 1.3, then what would be A's new required rate of return? Round your answer to one decimal place. % 22222222 122122222322 2014 25226225 250-50 22 352525 2----- 2015arrow_forward
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