Assume that the risk-free rate is 3.5% and the market risk premium is 3%. What is...

Assume that the risk-free rate is 3.5% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 1.9? Round your answer to two decimal places. %

Expert Solution

a) Calculation of the required rate of return of the overall stock market:

Formula,

Required rate of return = Risk free rate + Beta x Market risk premium

Note: Beta of the overall market is alway 1.

So, Required rate of return of the overall marlet will be = 3.50% + 1 x 3%

= 3.50% + 3%

= 6.50% (Answer)

b) Required rate of return of a stock with beta 1.90 = 3.50% + 1.90 x3%

= 3.50% + 5.70%

= 9.20% (Answer)

jeff jeffy answered 2 years ago

Assume that the risk-free rate is 6% and the market risk premium is 3%.

EXPECTED AND REQUIRED RATES OF RETURN Assume that the risk-free rate is 6% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places.

a). What is the market risk premium if the risk free rate is 5% and the...

a). What is the market risk premium if the risk free rate is 5% and the expected market return is given as follows? State of nature Probability Return Boom 20% 30% Average 70% 15% Recession 10% 5% b). A firm is evaluating two projects that are mutually exclusive with initial investments and cash flows as follows: Project A Project B Initial Investment End-of-Year Cash Flows Initial Investment End-of-Year Cash Flows RM40,000 RM 20,000 RM 90,000 RM 40,000 RM 20,000 RM...

Assume that the risk-free rate is 4.8 percent, and that the market risk premium is 4.1...

Assume that the risk-free rate is 4.8 percent, and that the market risk premium is 4.1 percent. If a stock has a required rate of return of 13.5 percent, what is its beta?

The risk-free rate is 2% and the market risk premium is 3%. If stock A has...

The risk-free rate is 2% and the market risk premium is 3%. If stock A has a beta of -1.5, what is the stock's required rate of return?

Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm...

Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - Rf ) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock’s expected return should be ____. A) 10.53% B) 14.24% C) 23.15% D) 6.59% What is the beta of a stock with an expected return of 10%, if Treasury bills...

3) You expect a risk free rate of 8% and a market risk premium of 6%....

3) You expect a risk free rate of 8% and a market risk premium of 6%. You ask a stockbroker what the firm’s research department expects for stocks “U”, “N”, and “D”. The broker responds with the following information: Stock Beta Current Price Expected Price Expected Dividend U 0.70 25 27 1.00 N 1.00 40 42 1.25 D 1.15 33 40 1.00 Compute the expected & required return for these three stocks, and plot them on an SML graph. Indicate...

The risk-free rate is 2% and the market risk premium is 5%. What is the required...

The risk-free rate is 2% and the market risk premium is 5%. What is the required return on a portfolio of stocks A and B given the information below: Stock Weight Beta A 30% 1.0 B 70% 0.5

Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%.

Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%.Draw the Security Market Line (SML). Discuss four (4) risks regarding alternative investments such as cryptocurrencies. Empirically analyse the insurance sector of Zambia, and wherepossible,...

Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%....

Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%. Draw the Security Market Line (SML). Stock X and Y have the following parameters. X Y Beta (β) 0.6 1.2 Beginning Value K20 K10 Dividend Value K2 K1 End Value K21 K10 Calculate the returns according to the Capital Asset Pricing Model (CAPM) utilising the market return you plotted in part A. Calculate the returns according to the values...

The risk-free rate is 6%, the market risk premium (=E(RM) - RF) is 8%. Assume CAPM...

The risk-free rate is 6%, the market risk premium (=E(RM) - RF) is 8%. Assume CAPM holds. A firm has a debt-to-equity ratio of 0.4. The firm's before-tax cost of debt is 10%. The firm's tax rate is 30%. If it had no debt, its cost of equity would be 16%. a) What is the beta of the firm's debt? b) What is the beta of the firm's equity if the firm had no debt? c) What is the beta...

Question