Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 6, Problem 22SP
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(Capital Asset Pricing Model) The expected return for the general market is 13.0 percent, and the risk premium in the market is 9.5 percent. Tasaco, LBM, and Exxos have betas of 0.842, 0.689,
and 0.547, respectively. What are the appropriate expected rates of return for the three securities?
The appropriate expected return of Tasaco is %. (Round to two decimal places.)
The appropriate expected return of LBM is%. (Round to two decimal places.)
The appropriate expected return of Exxos is%. (Round to two decimal places.)
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(Capital Asset Pricing Model) The expected return for the general market is
10.5
percent, and the risk premium in the market is
6.8
percent. Tasaco, LBM, and Exxos have betas of
0.809,
0.677,
and
0.578,
respectively. What are the appropriate expected rates of return for the three securities?
Question content area bottom
Part 1
The appropriate expected return of Tasaco is
enter your response here%.
(Round to two decimal places.)
Part 2
The appropriate expected return of LBM is
enter your response here%.
(Round to two decimal places.)
Part 3
The appropriate expected return of Exxos is
enter your response here%.
(Round to two decimal places.)
ques 11
Chapter 6 Solutions
Foundations Of Finance
Ch. 6 - a. What is meant by the investors required rate of...Ch. 6 - Prob. 2RQCh. 6 - What is a beta? How is it used to calculate r, the...Ch. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - What effect will diversifying your portfolio have...Ch. 6 - (Expected return and risk) Universal Corporation...Ch. 6 - (Average expected return and risk) Given the...
Ch. 6 - (Expected rate of return and risk) Carter, Inc. is...Ch. 6 - (Expected rate of return and risk) Summerville,...Ch. 6 - Prob. 5SPCh. 6 - Prob. 9SPCh. 6 - Prob. 10SPCh. 6 - Prob. 11SPCh. 6 - Prob. 12SPCh. 6 - Prob. 14SPCh. 6 - (Capital asset pricing model) Using the CAPM,...Ch. 6 - Prob. 16SPCh. 6 - Prob. 17SPCh. 6 - a. Compute an appropriate rate of return for Intel...Ch. 6 - (Estimating beta) From the graph in the right...Ch. 6 - Prob. 20SPCh. 6 - Prob. 21SPCh. 6 - (Capital asset pricing model) The expected return...Ch. 6 - (Portfolio beta and security market line) You own...Ch. 6 - (Portfolio beta) Assume you have the following...Ch. 6 - Prob. 1MCCh. 6 - Prob. 2MCCh. 6 - Prob. 3MCCh. 6 - Prob. 4MCCh. 6 - Prob. 5MCCh. 6 - Prob. 6MCCh. 6 - Prob. 7MCCh. 6 - Prob. 8MCCh. 6 - Prob. 9MCCh. 6 - Prob. 10MCCh. 6 - Prob. 11MC
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- See Attachedarrow_forwarda) Suppose the risk-free rate is 1% and the expected rate of return on the market portfolio is 10%. In your view, the expected rate of return of a security is 12.2%. Given that this security has a beta of 1.4, do you consider it to be overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model? Please provide the details of your calculations and discuss your resultsarrow_forward(Capital asset pricing model) Grace Corporation is considering the following investments. The current rate on Treasury bills is 2.5 percent and the expected return for the market is 9 percent. Stock Beta K 1.06 G 1.28 B 0.78 U 0.93 (Click on the icon in order to copy its contents into a spreadsheet.) a. Using the CAPM, what rates of return should Grace require for each individual security? b. How would your evaluation of the expected rates of return for Grace change if the risk-free rate were to rise to 4 percent and the market risk premium were to be only 6 percent? c. Which market risk premium scenario (from part a or b) best fits a recessionary environment? A period of economic expansion? Explain your response. Question content area bottom Part 1 a. The expected rate of return for security K, which has a beta of 1.06, is enter your response here%. (Round to two decimal places.) Part 2 The expected rate…arrow_forward
- Please see attached.arrow_forwardThe risk-free rate and the expected market return are 5% and 12%, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 2 is equal to: a 19% b 29% c 12% d 10% e 15%arrow_forward(Capital Asset Pricing Model) CSB, Inc. has a beta of 0.758. If the expected market return is 10.5 percent and the risk-free rate is 6.5 percent, what is the appropriate expected return of CSB (using the CAPM)? The appropriate expected return of CSB is%. (Round to two decimal places.)arrow_forward
- a) Suppose the risk-free rate is 5% and the expected rate of return on the market portfolio is 10%. In your view, the expected rate of return of a security is 12.2%. Given that this security has a beta of 1.4, do you consider it to be overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model? Please provide the details of your calculations and discuss your results b)Stock 1 has a standard deviation of return of 6%. Stock 2 has a standard deviation of return of 2%. The correlation coefficient between the two stocks is 0.5. If you invest 60% of your funds in stock 1 and 40% in stock 2, what is the standard deviation of your portfolio? Please provide the details of your calculations and discuss your results. You decide now to combine your portfolio (discussed in question b) with another portfolio with the same standard deviation and invest equally in both portfolios. The correlation between the two portfolios is zero. d) What is the standard deviation of…arrow_forwardThe Treasury bill rate is 4.9%, and the expected return on the market portfolio is 11.1%. Use the capital asset pricing model. What is the risk premium on the market? (Enter your answer as a percent rounded to 1 decimal place.) What is the required return on an investment with a beta of 1.2? (Enter your answer as a percent rounded to 2 decimal places.) If an investment with a beta of 0.46 offers an expected return of 8.7%, does it have a positive NPV? If the market expects a return of 12.2% from stock X, what is its beta? (Round your answer to 2 decimal places.)arrow_forward2. Using the capital asset pricing model (CAPM), estimate the appropriate required rate of return for the following three stocks, assuming that the risk-free rate (rRF) is 5 percent and the expected return for the market (rM) is 17 percent. Please show all work. Stock Beta (?) A 0.75 B 0.90 C 1.40arrow_forward
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