Question

(Capital asset pricing model)

Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 6

percent and the expected return for the market is 17 percent.

STOCK |
BETA |
||

A |
0.75 |
||

B |
0.94 |
||

C |
1.31 |
||

(Click on the icon located on the top-right corner of the data table above in order to copy its contents into a spreadsheet.) |

a. Using the CAPM, the required rate of return for stock A is ______%. (Round to two decimal places.)

b. Using the CAPM, the required rate of return for stock B is _____%. (Round to two decimal places.)

c. Using the CAPM, the required rate of return for stock C is ______%. (Round to two decimal places.)

Answer #1

(Capital asset pricing model) Anita, Inc. is considering the
following investments. The current rate on Treasury bills is
7
percent, and the expected return for the market is
10.5
percent. Using the CAPM, what rates of return should Anita
require for each individual security?
Stock
Beta
H
0.75
T
1.72
P
0.85
W
1.31
a. The expected rate of return for security H, which has a
beta of
0.75,
is
nothing%.
(Round to two decimal places.)b. The expected rate of...

Examples of capital asset pricing model (CAPM), when it comes to
the required rate of return.

Manipulating CAPM???Use the basic equation for the capital asset
pricing model ?(CAPM?) to work each of the following problems.
a.??Find the required return for an asset with a beta of 0.810.81
when the? risk-free rate and market return are 99?% and 17 %17%?,
respectively. b.??Find the ?risk-free rate for a firm with a
required return of 12.98212.982?% and a beta of 1.891.89 when the
market return is 10 %10%. c.??Find the market return for an asset
with a required return...

Applying the capital-asset pricing model approach, compute the
required rate of return for each of the following stocks. Assume a
risk-free rate of 0.05 and an expected return for the market
portfolio of 0.15.
STOCK
A
B
C
D
BETA
2.0
1.0
-0.5
0
(a) If
you could only invest in one of these stocks, justify which stock
you would choose.
(b)
Suggest which type of stock does stock C belong to. Explain your
answer.

a. (Required Rate of Return Using CAPM) Compute a fair rate of
return for Apple
common stock, which has a 1.5 beta. The risk-free rate is 8 percent
and the
market portfolio (New York Stock Exchange stocks) has an expected
return of
16 percent.
b. Why is the rate you computed a fair rate?

Risk-adjusted rates of return using CAPM Centennial
Catering, Inc., is considering two mutually exclusive investments.
The company wishes to use a CAPM-type risk-adjusted discount rate
(RADR) in its analysis. Centennial's managers believe that the
appropriate market rate of return is 12.1 %, and they observe that
the current risk-free rate of return is 6.5 %. Cash flows
associated with the two projects are shown in the following
table. (Click on the icon located on the top-right corner of the
data...

CAPM: The Capital Asset Pricing Model (CAPM) is a financial
model that assumes returns on a portfolio are normally distributed.
Suppose a portfolio has an average annual return of 12% (i.e. an
average gain of 12%) with a standard deviation of 23%. A return of
0% means the value of the portfolio doesn't change, a negative
return means that the portfolio loses money, and a positive return
means that the portfolio gains money. (please round answers to
within one-hundredth of...

Manipulating CAPM Use the basic equation for the capital asset
pricing model (CAPM) to work each of the following problems.
a. Find the required return for an asset with a beta of 0.54
when the risk-free rate and market return are 6 % and 8 % ,
respectively.
b. Find the risk-free rate for a firm with a required return
of 6.368 % and a beta of 0.26 when the market return is 11 % .
c. Find the market...

Use the Capital Asset Pricing Model to calculate the expected
return of two stocks (X and Y) with the following characteristics:
Beta for Stock X = 1.50: Beta for Stock Y = 0.75: Expected market
Return = 9%, and 10-Year Treasury Note Rate = 3%. (Must show work
to receive full credit)

CAPM. The Capital Asset Pricing Model (CAPM) is a financial
model that assumes returns on a portfolio are normally distributed.
Suppose a portfolio had an average annual rate of return of 14.7%
(i.e an average gain of 14.7%) with a standard deviation of 33%. A
return of 0% means the value of the portfolio doesn't change, a
negative return means that the portfolio loses money, and a
positive return means that the portfolio gains money.
What percent of years does...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 16 minutes ago

asked 32 minutes ago

asked 36 minutes ago

asked 41 minutes ago

asked 51 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago