Question
In: Accounting
Here are data on two companies. The T-bill rate is 4% and the market risk premium...
Here are data on two companies. The T-bill rate is 4% and the
market risk premium is 6%.
| Company | $1 Discount Store | Everything $5 | ||
| Forecast return | 12% | 11% | ||
| Standard deviation of returns | 8% | 10% | ||
| Beta | 1.5 | 1.0 | ||
Based on the fair return and according to the capital asset pricing
model (CAPM), is each firm properly priced?
| Company | Expected Return | ||
| $1 Discount Store | (Click to select)Properly pricedUnderpricedOverpriced % | ||
| Everything $5 | (Click to select)UnderpricedProperly pricedOverpriced % | ||
Solutions
ekkarill92 answered 3 years agoRelated Solutions
Here are data on two companies. The T-bill rate is 4% and the market risk premium...
Here are data on two companies. The T-bill rate is 4% and the
market risk premium is 6%.
Company
$1 Discount Store
Everything $5
Forecasted Return
12%
11%
Standard Deviation of Returns
8%
10%
Beta
1.5
1.0
1) What would be the fair return for each company, according to the
capital asset pricing model (CAPM)?
2) Explain how the CAPM is used to perform this calculation and
how a financial advisor would utilize this information to advise a
client.
3)...
Suppose that a financial analyst collected the following data: rate of return on T-bill is 2.5% Market risk premium is = 5%
Suppose that a financial analyst collected the following data:
rate of return on T-bill is 2.5% Market risk premium is = 5%;
company's beta is 0.7; D1 = $2.00; current stock price is $30.00;
future growth of dividends is 6%.
INTEREST RATES= INFLATION PREMIUM + Compensation for risk free rate ( T Bill Rate ) of...
INTEREST RATES= INFLATION PREMIUM + Compensation for
risk free rate ( T Bill Rate ) of return + specific risk premium
compensation ( Default Risk, Liquidity Risk, Maturity Risk,
Opportunity risk, etc).
compare and contrast the various methods used by banks
to assess interest rate risk to their net interest rate margin?
The Treasury bill rate is 5% and the market risk premium is 8%. Project Beta Internal...
The Treasury bill rate is 5% and the market risk premium is
8%.
Project
Beta
Internal Rate
of Return, %
P
0.95
14
Q
0.00
12
R
2.00
21
S
0.35
13
T
1.60
23
a. What are the project costs of capital for
new ventures with betas of 0.70 and 1.59? (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 2 decimal places.)
b. Which of the capital investments shown above
have positive (non-zero) NPV's?...
The Treasury bill rate is 3% and the market risk premium is 7%. Project Beta Internal...
The Treasury bill rate is 3% and the market risk premium is
7%.
Project
Beta
Internal Rate of Return, %
P
0.65
7
Q
0
10
R
1.00
12
S
0.05
11
T
0.60
14
a.
What are the project costs of capital for new ventures with
betas of .40 and 1.78? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Beta
Cost of Capital
0.40
%
1.78
...
The Treasury bill rate is 5% and the market risk premium is 8%. Project Beta Internal...
The Treasury bill rate is 5% and the market risk premium is
8%.
Project
Beta
Internal Rate of Return, %
P
1.00
16
Q
0
8
R
2.00
22
S
0.40
9
T
1.90
20
a.
What are the project costs of capital for new ventures with
betas of .75 and 1.55? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
Beta
Cost of Capital
0.75
%
1.55
...
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...
The T-bill rate is 4 percent and the expected return on the market is 12 percent....
The T-bill rate is 4 percent and the expected return on the
market is 12 percent.
a. What projects have a higher expected return than the firm’s
12.5 percent cost of capital?
b. Which projects should be accepted?
Project
Beta
IRR
W
0.80
10.2%
X
0.90
11.4%
Y
1.10
12.6%
Z
1.35
15.1%
The current risk-free rate is 2 percent and the market risk premium is 4 percent. You...
The current risk-free rate is 2 percent and the market risk
premium is 4 percent. You are trying to value ABC company and it
has an equity beta of 0.8. The company earned $3.50 per share in
the year that just ended. You expect the company's earnings to grow
4 percent per year. The company has an ROE of 13 percent.
a. What is the value of the stock? Do not round intermediate
calculations. Round your answer to the nearest...
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...
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