Question

In: Finance

The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors....

The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors. Estimated sensitivities to these risk factors are given by the betas of the regression

RAPT – Rrf = βcreditRcredit + βvalue Rvalue + α + ε

Factor Risk Premium Beta
Credit Risk 5.3% 1.5
Valuation Risk 2.4% 0.3
Risk-free rate 1.3%

What is the expected return on the stock of Arbor Pet Trees if the stock is fairly valued?

Solutions

Expert Solution

jeff jeffy answered 3 hours ago
Next > < Previous

Related Solutions

The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors....
The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors. Estimated sensitivities to these risk factors are given by the betas of the regression RAPT – Rrf = βcreditRcredit + βvalue Rvalue + α + ε Factor Risk Premium Beta Credit Risk 5.6% 1 Valuation Risk 3.8% 0.3 Risk-free rate 2.1% If the actual return is 9.2%, what is the value of alpha?
The stock of Arbor Pet Trees (APT) is priced based on the givensystematic risk factors....
The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors. Estimated sensitivities to these risk factors are given by the betas of the regression RAPT – Rrf = βcreditRcredit + βvalue Rvalue + α + ε Factor Risk Premium Beta Credit Risk 5.3% 0.8 Valuation Risk 2.5% 0.6 Risk-free rate 2.1% What is the expected return on the stock of Arbor Pet Trees if the stock is fairly valued?
Consider an APT world with one systematic risk: MARKET risk. Expected return for the market portfolio...
Consider an APT world with one systematic risk: MARKET risk. Expected return for the market portfolio is 8% and risk-free rate is 2%. A stock analyst estimates the following characteristics for the Portfolio ABC. Assume that the analyst estimates are correct. Portfolio E(R) Market BETA ABC 11.0% 1.8 What is the NO-ARBITRAGE (i.e. in equilibrium) expected return for portfolio ABC? 10.0% 10.5% 11.0% 12.0% 12.8%
Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium (%)...
Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium (%) Change in gross national product (GNP) +5.7 Change in energy prices 0.3 Change in long-term interest rates +2.7 Calculate expected rates of return on the following stocks. The risk-free interest rate is 5.5%. A stock whose return is uncorrelated with all three factors. (Enter your answer as a percent rounded to 1 decimal place.) A stock with average exposure to each factor (i.e., with...
Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium (%)...
Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium (%) Change in GNP +5.6 Change in energy prices –1.6 Change in long-term interest rates +2.6 Calculate expected rates of return on the following stocks. The risk-free interest rate is 5.6%. a. A stock whose return is uncorrelated with all three factors. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) Expected rate of return             % b. A...
Contribute Wiki on given topic: Systematic risk and expected returns in emerging markets. Systematic risk, also...
Contribute Wiki on given topic: Systematic risk and expected returns in emerging markets. Systematic risk, also known as "market risk" or "un-diversifiable risk", is the doubt inherent to the entire market. Also brought up to as volatility systematic risk consists of the day-to-day fluctuations in a stock's price. Volatility is a criterion of risk because it refers to the behavior, or "temperament," of your investment rather than the reason for this behavior. Because market movement is the cause why people...
Explain why a low-priced, low trading volume stock is more apt to present limits to arbitrage than is a high-priced, high trading volume stock
Explain why a low-priced, low trading volume stock is more apt to present limits to arbitrage than is a high-priced, high trading volume stock. Please provide a detailed and informative answer.
Given the following information on US Tobacco, determine whether the company’s stock is attractively priced based...
Given the following information on US Tobacco, determine whether the company’s stock is attractively priced based on the two valuation methods (DVM, P/E). US Tobacco S&P 500 Recent price $27.00    $ 290 Anticipated next year’s dividend $1.20    $ 8.75 Growth in dividends & earnings 10.0%    7.0% Required return 13.0% Estimated next year’s EPS $2.40 $16.50 P/E ratio based on next year’s earnings 11.3 17.6 Dividend Yield 4.4% 3.0%
1.3. If a stock had no systematic risk, only unsystematic risk, what would be its expected...
1.3. If a stock had no systematic risk, only unsystematic risk, what would be its expected return? Motivate your answer (3) 1.4 Answer this student’s question: “Isn’t it inconsistent to measure risk by the standard deviation in mean variance analysis and by the beta coefficient in the Capital Asset Pricing Model?”(4)
Distinguish between unique/firm specific risk and systematic/market risk for an individual stock which of these does...
Distinguish between unique/firm specific risk and systematic/market risk for an individual stock which of these does the market used to determine the riskiness and therefore the price of the stock?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT