Question

Suppose AAPL has a beta of 0.8. If the risk-free rate is 3% and the market return is 9%, according to CAPM, the expected return for AAPL is? If the stock price for AAPL is $100 today, according to the expected return you calculate, what is the expected price for AAPL in a year if AAPL is not paying dividend? What is the expected price if AAPL will pay a dividend of $3?

Answer #1

According to Capital Asset Pricing Model,

Expected rate of return of stock (R) = Rf + B(Rm- Rf)

Where , Rf = risk-free rate ; B = Beta of the stock ; Rm = return on the market

Expected rate of return of stock (R) = 3 + 0.8 (9- 3) =
**7.8%**

Since the expected reurn is 7.8% and stock price for today is $100, the expected price of stock if dividend is not paid can be computed as follows:

Po = (P1 +D1) / (R + g)

100 = (P1+0) / (0.078 + 0)

P1 = $100 * 0.078

**P1 = $7.8**

If the company pays a dividend of $3, the expected price can be computed using dividend growth model as follows:

Po = (P1 +D1) / (R + g)

100 = (P1+3) / (0.078 + 0)

P1 = $100 * 0.078 - $3

**P1 = $4.8**

() The risk-free rate and the expected market rate of return
are 0.056 and 0.125, respectively. According to the capital asset
pricing model (CAPM), what is the expected rate of return on a
security with a beta of 1.25?
(s) Consider the CAPM. The risk-free rate is 5%, and the
expected return on the market is 15%. What is the beta on a stock
with an expected return of 17%?
(A coupon bond pays annual interest, has a par value...

3. Stock XYZ has a beta of 2.0. The risk-free rate is 1%. The
market is expected to return 10% a year before the pandemic hits.
The stock is expected to pay a dividend of $1 a year, every year,
forever. The pandemic hits. Investors now expect the market to
return only 8% a year. The risk-free rate is lowered to 0%, and now
the stock is expected to pay a dividend of $0.50 a year, every
year, forever. What...

Suppose Intel stock has a beta of 1.44, whereas Boeing stock
has a beta of 0.8. If the risk-free interest rate is 6.4 % and the
expected return of the market portfolio is 10.5 %, according to
the CAPM,
a. What is the expected return of Intel stock?
b. What is the expected return of Boeing stock?
c. What is the beta of a portfolio that consists of 55 % Intel
stock and 45 % Boeing stock?
d. What is...

a) Suppose the risk-free rate is 4.4% and the market portfolio
has an expected return of 10.9%. The
market portfolio has variance of 0.0391. Portfolio Z has a
correlation coefficient with the market of 0.31
and a variance of 0.3407. According to the capital asset pricing
model, what is the beta of Portfolio Z?
What is the expected return on Portfolio Z?
b) Suppose Portfolio X has beta of 1 with expected return of 11.5%.
Draw the SML and comment...

The risk-free rate is 3%. Asset A has beta of 0.8 and expected
return of 11%. If asset B has expected return 15%, what must be the
beta for Asset B?

Suppose the yield on short-term government securities
(perceived to be risk-free) is about 3%. Suppose also that the
expected return required by the market for a portfolio with a beta
of 1 is 13.5%. According to the capital asset pricing model:
(15 points)
What is the expected return on the market portfolio?
What would be the expected return on a zero-beta stock?
Suppose you consider buying a share of stock at a price of $41.
The stock is expected to...

Suppose the required rate of return on a stock with Beta 1.2 is
18 per cent and risk free rate is 6 per cent. According to the
CAPM
a) What is the expected rate of return on the market
portfolio?
b) What is the expected rate of return of a zero-beta
security?
c) Suppose you select Stock ABC for Rs. 50 and the stock is
expected to pay a dividend of rs. 2 next year and is expected to
fetch...

1. Suppose the yield on short-term government securities
(perceived to be risk-free) is about 3%. Suppose also that the
expected return required by the market for a portfolio with a beta
of 1 is 13.5%. According to the capital asset pricing model:
a. What is the expected return on the market portfolio?
b. What would be the expected return on a zero-beta stock?
c. Suppose you consider buying a share of stock at a price of
$41. The stock is...

A stock has a beta of 1.8. The risk-free rate is 2%. Assume that
the CAPM holds.
A: What is the expected return for the stock if the expected
return on the market is 11%? 3+ Decimals
B: What is the expected return for the stock if the expected
market risk premium is 11%? 3+ Decimals

A stock has a beta of 1.3 and an expected return of 14%. The
risk free rate is 2% and the expected return on the market
portfolio is 9%. How much better (or worse) is the expected return
on the stock compared to what it should be according to the
CAPM?
Enter answer in percents, accurate to two decimal places.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 13 minutes ago

asked 13 minutes ago

asked 26 minutes ago

asked 35 minutes ago

asked 49 minutes ago

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago