Question

If security X’s beta is 1.30, the expected return on the market is 6%, and the...

  1. If security X’s beta is 1.30, the expected return on the market is 6%, and the risk-free rate is 1%.
  1. What must the expected return on this stock be? (10 points)

b.If the current expected return of security X is 8%, is the stock price fair, undervalued or overvalued? (10 points)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The market price of a security is $60. Its expected rate of return is 10%. The...
The market price of a security is $60. Its expected rate of return is 10%. The risk-free rate is 6%, and the market risk premium is 8%. What will the market price of the security be if its beta doubles (and all other variables remain unchanged)? Assume the stock is expected to pay a constant dividend in perpetuity. (Round your answer to 2 decimal places.) Market price $
Stock Y has a beta of 1.5 and an expected return of 14.2 percent. Stock Z...
Stock Y has a beta of 1.5 and an expected return of 14.2 percent. Stock Z has a beta of 0.85 and an expected return of 10.7 percent.     Required: If the risk-free rate is 4.6 percent and the market risk premium is 7.1 percent, are these stocks correctly priced?        Stock Y undervalued or overvalued?     Stock Z undervalued or overvalued?  
Stock Y has a beta of 1.2 and an expected return of 15.3 percent. Stock Z...
Stock Y has a beta of 1.2 and an expected return of 15.3 percent. Stock Z has a beta of .8 and an expected return of 10.7 percent. If the risk-free rate is 6 percent and the market risk premium is 7 percent, the reward-to-risk ratios for stocks Y and Z are  and  percent, respectively. Since the SML reward-to-risk is  percent, Stock Y is Undervalued of Overvalued (pick one) and Stock Z is  Undervalued of Overvalued (pick one). (Do not round intermediate calculations. Enter...
Suppose the required rate of return on a stock with Beta 1.2 is 18 per cent...
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...
A stock with a beta of 0.77 currently priced at $45 is expected to increase in...
A stock with a beta of 0.77 currently priced at $45 is expected to increase in price to $65 by year-end and pay a $1 dividend. The expected market return is 17%, and the risk-free rate is 8%. Determine by calculations if the stock is overvalued or undervalued.
Stock X’s beta is 1.8, the nominal risk-free rate is 2.4 percent, and the expected rate...
Stock X’s beta is 1.8, the nominal risk-free rate is 2.4 percent, and the expected rate of return on an average stock is 12 percent. The current price for Stock X is $8. The dividend that was just paid was $0.80, and the stock’s expected constant growth rate is 8 percent. Should Larson buy this stock? (Calculate the equilibrium value of the stock and decide if it’s worth $8.)
Security A has a beta of 0.99. The market expected rate of return is 8%, and...
Security A has a beta of 0.99. The market expected rate of return is 8%, and the risk-free rate is 3%. If the Security A is observed with an expected return of 8.02%, the alpha of the stock is _________. Present your answer in % and two decimal places. For example, if the answer is 5.53%, input 5.53.
Home Interior's stock has an expected return of 13.2 percent and a beta of 1.28. The...
Home Interior's stock has an expected return of 13.2 percent and a beta of 1.28. The market return is 10.7 percent and the risk-free rate is 2.8 percent. This stock is overvalued or undervalued? ____________ because the CAPM return for the stock is ________ percent. If Home Interior's expected return rose to 14.12%, the stock would be overvalued or undervalued? ____________ because the CAPM return for the stock is ________ percent. Please show your work.
1.) According to the CAPM, what is the expected return on a security given a market...
1.) According to the CAPM, what is the expected return on a security given a market risk premium of 9%, a stock beta of 0.57, and a risk free interest rate of 1%? Put the answers in decimal place. 2.)   Consider the CAPM. The risk-free rate is 2% and the expected return on the market is 14%. What is the expected return on a portfolio with a beta of 0.5?   (Put answers in decimal points instead of percentage) 3.) A...
A stock has a beta of 1.65, the expected return on the market is 10 percent,...
A stock has a beta of 1.65, the expected return on the market is 10 percent, and the risk-free rate is 6 percent. What must the expected return on this stock be?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT