If a stock with .40 beta has a risk premium of 11%, find out the market's...

If a stock with .40 beta has a risk premium of 11%, find out the market's return assuming zero risk-free rate.

a. none of the above

b. 27.5%

c. 11.4%

d. 4.4%

Solutions

Expert Solution

Stock risk premium = Market risk premium x beta

11% = market risk premium x 0.40

Therefore market risk premium = 27.5%

Market Return = Market risk premium + Risk Free rate

Market Return = 27.50% + 0%

Market Return = 27.50%

Therefore option b 27.50% is correct option

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

What is the risk premium for a stock that has a Beta of 2.5, while treasury...

What is the risk premium for a stock that has a Beta of 2.5, while treasury bills are yielding 1% and the return on the market portfolio is 11%?

Stock M has a beta of 1.2. The market risk premium is 7.8 percent and the...

Stock M has a beta of 1.2. The market risk premium is 7.8 percent and the risk-free rate is 3.6 percent. Assume you compile a portfolio equally invested in Stock M, Stock N, and a risk-free security that has a portfolio beta equal to the overall market. What is the expected return on the portfolio? a.) 11.2% b.) 10.8% c.) 10.4% d.) 11.4% e.) 11.7%

2. A stock has a beta of 1.35, the market risk premium is 6 percent, and...

2. A stock has a beta of 1.35, the market risk premium is 6 percent, and the risk-free rate is 3.5 percent. What is the required rate of return on this stock? Group of answer choices a. 3.50% b. 6.87% c. 11.60% d. 13.13%

What is the risk premium for Stock NVDA, given it has a beta of 0.75, while...

What is the risk premium for Stock NVDA, given it has a beta of 0.75, while the market portfolio is yielding 12% and treasury bills are yielding 2%?

A company’s stock has a beta of 1.34. The market risk premium is 7.90 percent and...

A company’s stock has a beta of 1.34. The market risk premium is 7.90 percent and the risk-free rate is 3.00 percent annually. The company also has a bond outstanding with a coupon rate of 7.4 percent and semiannual payments. The bond currently sells for $1,910 and matures in 16 years. The par value is $2000. The company's debt–equity ratio is .53 and tax rate is 30 percent. a. What is the company's cost of equity? (Do not round intermediate...

Suppose the stock in Watta Corporation has a beta of 0.8. The market risk premium is...

Suppose the stock in Watta Corporation has a beta of 0.8. The market risk premium is 6 percent, and the risk-free rate is 3 percent. Watta’s dividend will be $1.20 per share next year and the dividend is expected to grow at 6 percent indefinitely. The stock currently sells for $45 per share. What is Watta’s cost of equity by the CAPM? ______% What is Watta’s cost of equity by the dividend growth model? ______% Suppose the market values of...

Suppose stock in Warren Corporation has a beta of 0.90. The market risk premium is 6...

Suppose stock in Warren Corporation has a beta of 0.90. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Warren’s last dividend was €1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for €45 per share. Warren has a target debt-equity ratio of 0.50. Its cost of debt is 9 percent before taxes. Its tax rate is 21 percent. Instructions: a. What is Warren’s cost of...

Suppose stock in Warren Corporation has a beta of 0.80. The market risk premium is 6...

Suppose stock in Warren Corporation has a beta of 0.80. The market risk premium is 6 percent, and the risk-free rate is 6 percent. Warren’s last dividend was €1.20 per share, and the dividend is expected to grow at 8 percent indefinitely. The stock currently sells for €45 per share. Warren has a target debt-equity ratio of 0.50. Its cost of debt is 9 percent before taxes. Its tax rate is 21 percent. Instructions: What is Warren’s cost of equity...

Stock in Country Road Industries has a beta of 1.04. The market risk premium is 8.5...

Stock in Country Road Industries has a beta of 1.04. The market risk premium is 8.5 percent, and T-bills are currently yielding 4 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 5.5 percent annual rate indefinitely. If the stock sells for $39 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.)

Stock in Country Road Industries has a beta of 0.85. The market risk premium is 8.5...

Stock in Country Road Industries has a beta of 0.85. The market risk premium is 8.5 percent, and T-bills are currently yielding 4 percent. The company's most recent dividend was $1.8 per share, and dividends are expected to grow at a 4.5 percent annual rate indefinitely. If the stock sells for $33 per share, what is your best estimate of the company's cost of equity? (Do not round your intermediate calculations.) 9.21% 10.2% 11.23% 7.83% 10.71%

Subjects