suppose risk free rate is 5 % , return on market is 11 % , and...

suppose risk free rate is 5 % , return on market is 11 % , and return on stock B is 14 % . a Calculate Stock B's beta, B.marvin has investments with the following characteristics in his protfolio

expect inv amount return Invested
abc 30% 10k
efg 16% 50k
qrp 20% 40k

suppose risk free rate is 5 % , return on market is 11 % , and return on stock B is 14 % . a Calculate Stock B's beta, B.?

if Stock B's beta were 1.5, what would be B's new required rate of return?

Solutions

Expert Solution

Risk free rate = 5%

Market return = 11%

Risk Premium = 11% - 5%

= 6%

Expected return = 14%

Beta is calculated below using CAPM model:

Expected rate of return = Risk free rate + Risk Premium × Beta

14% = 5% + (6% × beta)

9% = 6% × beta

Beta = 1.50

Beta of company is 1.50.

So, if Beta of cmpany is 1.50 then required rate of return is 14%.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Risk free rate of return is 5% & required rate of return on the market is...

Risk free rate of return is 5% & required rate of return on the market is 9%. What is the security market line? If corporate beta is 1.8 what does that mean?

5. The risk-free rate of return is 8%, the expected rate of return on the market...

5. The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 15%, and the stock of Xyong Corporation has a beta of 1.2. Xyong pays out 40% of its earnings in dividends, and the latest earnings announced were $10 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyong will earn an ROE of 20% per year on all reinvested earnings forever. (a) What is the...

Suppose the risk-free interest rate is 5%, and the stock market will return either be +21%...

Suppose the risk-free interest rate is 5%, and the stock market will return either be +21% or −10% each year, with each outcome equally likely. Compare the following two investment strategies: (1) invest for one year in the risk-free investment, and one year in the market, or (2) invest for both years in the market. a. Which strategy has the highest expected final payoff? b. Which strategy has the highest standard deviation for the final payoff? c. Does holding stocks...

The risk free rate is 5% and the market rate of return is 8%. Stock A...

The risk free rate is 5% and the market rate of return is 8%. Stock A has a beta value =0.5. Required: (A). Draw the Security Market Line (SML) clearly indicating the risk free asset, market and stock A.[12marks].(B) Stock A beginning price is K50 and during the year paid a dividend of k3 with a maturity value of k55. Show using an empirical evidence weather stock A is undervalued, overvalued of fairly valued.[8marks]

If the risk-free rate is 5% and the return on the market is 10%, what is...

If the risk-free rate is 5% and the return on the market is 10%, what is alpha equal to for a stock with a beta of 2 that has an expected return of 15%?

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect...

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 11%, you should: buy CAT because it is overpriced sell short CAT because it is overpriced sell stock short CAT because it is underpriced buy CAT because it is underpriced hold CAT because it is fairly priced

Assume that the risk-free rate, Rf = 5%; the expected rate of return on the market,...

Assume that the risk-free rate, Rf = 5%; the expected rate of return on the market, E(Rm)= 11%; and that the standard deviation of returns on the market portfolio is σM =20%. Calculate the expected return and standard deviation of returns for portfolios that are 25%, 75%, and 125% invested in the market portfolio.

Assume the risk-free rate of interest is 5% and the expected return on the market is...

Assume the risk-free rate of interest is 5% and the expected return on the market is 12%. If you are evaluating a project with a beta of 1.3 and an IRR of 17%, and you draw the security market line (SML) to guide your decision, which of the following statements is true? a. The vertical intercept of the SML will be 7%. b. The project’s IRR of 17% falls on the SML. c. The project’s IRR of 17% falls below...

Given that the risk-free rate is 5% and the expected return on the market portfolio is...

Given that the risk-free rate is 5% and the expected return on the market portfolio is 10%, if bush company's beta is 2, what is Dow's expected return? A. 18% B. 21% C. 10% D. 15% What is the best measure of risk for an asset that is to be held in isolation (one stock portfolio)? A. market risk B. Beta C. Diversifiable risk D. Standard deviation Which is the best measure of risk for choosing an asset which is...

The risk-free rate is 5%, the expected return on the market portfolio is 14%, and the...

The risk-free rate is 5%, the expected return on the market portfolio is 14%, and the standard deviation of the return on the market portfolio is 25%. Consider a portfolio with expected return of 16% and assume that it is on the efficient frontier. (a) What is the beta of this portfolio? (b) What is the standard deviation of its return? (c) What is its correlation with the market return? (d) Draw the portfolio in two diagrams: one in the...

Subjects