5) A stock has an expected return of 0.14, its beta is 0.94, and the expected...

5) A stock has an expected return of 0.14, its beta is 0.94, and the expected return on the market is 0.07. What must the risk-free rate be? (Hint: Use CAPM) Enter the answer in 4 decimals e.g. 0.0123.

6) You own a portfolio equally invested in a risk-free asset and two stocks (If one of the stocks has a beta of 1.77 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Hint: Remember that the market has a Beta=1; also remember that equally invested means that each asset has the same weight- since there are 3 assets, each asset's weight is 1/3 or 0.3333). Enter the answer with 4 decimals (e.g. 1.1234)

1) Filer Manufacturing has 9900000 shares of common stock outstanding. The current share price is $53.17, and the book value per share is $6.68. Filer Manufacturing also has two bond issues outstanding. The first bond issue has a face value of $40000000, has a 0.07 coupon, matures in 23 years and sells for 83 percent of par. The second issue has a face value of $57000000, has a 0.06 coupon, matures in 11 years, and sells for 92 percent of par. What is Filer's weight of equity on a market value basis? Enter the answer with 4 decimals (e.g. 0.2345)

Expert Solution

5)

Risk free rate of return (Rf)	(Rs-β×Rm)/(1-β)

Here,

Required rate of return (Rs)	0.14
Beta of the stock (β)	0.94
Market return (Rm)	0.07

Risk free rate of return (Rf)	1.2367
	(14%-0.94×7%)/(1-0.94)

jeff jeffy answered 2 years ago

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