Corporate Fin Focused Approach
Corporate Fin Focused Approach
5th Edition
ISBN: 9781285660516
Author: EHRHARDT
Publisher: Cengage
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Q: The risk-free rate is 5%, the beta of Stock A is 1.2, the beta of Stock B is 0.8, and the expected…
A: In the given question we require to calculate the Expected return on Stock B. We calculate the…
Q: If a stock has a beta of 0.8, what doesthat imply about its risk relative to the market?
A: Beta: Beta can be defined as the measure of instability of a separate stock relative to the…
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A: CAPM stands for the Capital Asset Pricing Model. It defines the relationship of the systematic risk…
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A: Demand for theCompany's Products Probability of this Demand Occurring Rate of Return if this Demand…
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A: Risk free rate = 4% Market return = 11% Beta = 1.39
Q: Assume that using the Security Market Line the required rate of return (RA) on stock A is found to…
A: As per the above consideration The ratio of expected return on A and expected return on B is
Q: Stock Y has a beta of 0.9 and an expected return of 11.4 percent. Stock Z has a beta of 1.5 and an…
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Q: Suppose the market portfolio has an expected return of 9% and a volatility of 18.5%. YMH stock…
A: Sharpe ratio shows the risk adjusted performance of the stock based on risk free rate and volatility…
Q: ected return for a stock with a beta equal to 0.50?  - What is the marke
A: Given information :
Q: A stock's returns have the following distribution: Demand for the Company's Products Probability of…
A: Risk free rate = 4% Formulas used:  Expected return = P1*X1 + P2*X2 +.....Pn*Xn
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Q: A stock has a required return of 11%, the risk- free is 7%, and the market risk premium is 4%. a.…
A: In this problem we require to calculate the beta of the stock and the revised required rate of…
Q: A stock's risk premium is equal to the: expected market risk premium times beta. expected market…
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Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…
A: Calculation of ratio of beta of A to beta of B: Answer: The ratio of beta A to beta B is 0.4286
Q: Stock Y has a beta of 1.2 and an expected return of 11.1 percent. Stock Z has a beta of .8 and an…
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Q: Stock X has a beta of 1.15 and an expected return of 11.1 percent. Stock Y has a beta of 1.2 and an…
A: Required Rate of Return is the percentage of minimum acceptable rate of return accepted by an…
Q: If a stock's expected return plots on or above the SML, then the stock's return is to compensate the…
A: Risk free rate rf: 4%Market return rm:  10%Market Risk premium RPm: 6%Beta: 1.1
Q: A stock has a beta of 0.7 and an expected return of 7.3 percent. If the risk-free rate is 1.3…
A: Beta = 0.7 Expected return = 7.3% Risk free rate = 1.3%
Q: Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here,…
A: In the given problem we need to calculate the Required rate of return of three stocks i.e. Stock A,…
Q: Use the expected return-beta equation from the CAPM. What is the expected return for a stock if the…
A: According to Capital asset pricing model ,k= Rf+[ b*(Rm-Rf) ]wherek= expected return for a stockRf=…
Q: Stock R has a beta of 1.8, Stock S has a beta of 0.55, the expected rate of return on an average…
A: Beta of stock R = 1.8 Beta of stock S = 0.55 Market return = 9% Risk free rate = 3%
Q: What is a stock's realized abnormal return if the stock had a 3% return and the stock had a…
A: Realized return Realized return is referred to as the actual return earned by the stock and is also…
Q: Assume that the CAPM holds. One stock has an expected return of 8% and a beta of 0.3. Another stock…
A: Reward to risk ratio can be found to determine the ratio of benefits that an investor can enjoy for…
Q: You are using the CAPM to calculate a fair return for Stardust common stock. The shares have a…
A: Standard deviation of stock = 36.00% Standard deviation of Market = 19.00% Correlation = 0.30 Risk…
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Concept explainers

Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for …
Question

Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of
return on an average stock is 13%, and the risk-free rate is 7%. By how
much does the required return on the riskier stock exceed that on the less
risky stock?

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