Assume that the risk-free rate is 3% and the expected return on the market is 8.5%....

Assume that the risk-free rate is 3% and the expected return on the market is 8.5%. What is the required rate of return on a stock with a beta of 1.3?

	a.	10.15%
	b.	14.05%
	c.	11.05%
	d.	7.15%

Solutions

Expert Solution

Using CAPM, Required rate of return = Risk free rate + Beta * Market risk premium

Required rate of return = 3% + 1.3* ( 8.5% - 3%) = 3% + 5.5% * 1.3 = 10.15%

Answer is

a.	10.15%

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

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...

Consider the CAPM. The risk-free rate is 3% and the expected return on the market is...

Consider the CAPM. The risk-free rate is 3% and the expected return on the market is 17%. The expected return on a stock with a beta of 1.2 is %. Please enter your answer with TWO decimal points.

Assume that the risk-free rate of interest is 5% and the expected rate of return on the market is 15%

Assume that the risk-free rate of interest is 5% and the expected rate of return on the market is 15%. I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If I think the beta of the firm is 0.3, when in fact the beta is really 0.6, how much more will I offer for the firm than it is truly worth? (Do not round intermediate calculations. Round your answer to...

1. Assume the following: The risk-free rate is 2%, the expected return on the market is...

1. Assume the following: The risk-free rate is 2%, the expected return on the market is 7%, and this firm's stock is twice as risky as the market on average. What would be the cost of equity for this firm? A. 12% B. 20% C. 8% D. 14% 2.A company has outstanding debt with a market value of $250M and common stock with a market value of $550M. If its debt has a before-tax cost of 7%, a before-tax cost...

Assume that the risk-free rate is 3% and the required return on the market is 9%....

Assume that the risk-free rate is 3% and the required return on the market is 9%. What is the required rate of return on a stock with a beta of 2.2? Round your answer to two decimal places.

a) Given a risk-free rate of 3%, an expected return of the market of 9%. What...

a) Given a risk-free rate of 3%, an expected return of the market of 9%. What is the risk premium for an asset with b = 1? b) What is the required return of an asset with b = 1.6? c) What is the reward to risk ratio? d) What is the expected return on a portfolio of 30% of the asset in b) and the remainder in an asset with an average amount of systematic risk?

The risk-free rate of return is 6%, the expected rate of return on the market portfolio...

The risk-free rate of return is 6%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporation has a beta coefficient of 2.3. Xyrong pays out 45% of its earnings in dividends, and the latest earnings announced were $9.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18% per year on all reinvested earnings forever. a. What is the...

The risk-free rate of return is 10.0%, the expected rate of return on the market portfolio...

The risk-free rate of return is 10.0%, the expected rate of return on the market portfolio is 17%, and the stock of Xyrong Corporation has a beta coefficient of 1.6. Xyrong pays out 30% of its earnings in dividends, and the latest earnings announced were $15 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 20% per year on all reinvested earnings forever. a. What is the...

The risk-free rate of return is 6%, the expected rate of return on the market portfolio...

The risk-free rate of return is 6%, the expected rate of return on the market portfolio is 14%, and the stock of Xyrong Corporation has a beta coefficient of 1.3. Xyrong pays out 50% of its earnings in dividends, and the latest earnings announced were $8.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 15% per year on all reinvested earnings forever. a. What is the...

Subjects