Question

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

Answer #1

1. The
risk-free rate of interest is 2%. Stock AAA has a beta
of 1.4 and a standard deviation of return = .40. The
expected return on the market portfolio is 9%. Assume CAPM
holds. (Note: the questions below are
independent not sequential.)a) Plot
the security market line. Label all axes of your
graph. Plot (and label) the points (and numerical
values) corresponding to the market portfolio, the
risk-free asset, and stock AAA.b) Your
current wealth is $1,000. What is the expected
returnfor a portfolio where youborrow$500 at the risk-free...

Problem1
Are statements below true or false? Explain
your answer.
a) (0.5 point) Assume that CAPM holds. Given that stocks A and
B, which are traded in the same market, have the same expected
return, their betas must be the same.
b) (0.5 point) Stocks A and B, which are traded in the same
market, have the same beta. Given that
Correlation(A,Market)>Correlation(B,Market), it must be the case
that Standard deviation(A)<Standard deviation(B).
c) (0.5 point) Assume that CAPM holds. In January...

The risk-free rate is 7%; Stock A has a beta of 2.0; Stock B has
a beta of 1.0; and the market risk premium, rM –
rRF, is positive. Which of the following statements is
CORRECT?
a. Stock A's required rate of return is twice that of Stock
B.
b. If Stock B's required return is 11%, then the market risk
premium is 5%.
c. If the risk-free rate remains constant but the market risk
premium increases, Stock A's required...

Using the CAPM, if a stock had a Beta of 1.35, the risk free
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What is the beta for the following portfolio?
Stock A is 60% with a beta of
1.25
Stock B is 30% with a beta of
0.9
Stock C I s10% with a beta of
-.25
In the example above, which Stock would have more volatility
relative to the market?...

Assume the CAPM holds. The risk-free rate is 5% and the market
portfolio expected return is 15% with a standard deviation of 20%.
An asset has an expected return of 16% and a beta of 0.8.
a) Is this asset return consistent with the CAPM? If not, what
expected return is consistent with the CAPM?
b) How could an arbitrage profit be made if this asset is
observed?
c) Would such a situation be expected to exist in the longer...

A stock has a beta of 0.79, the expected return on the market
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Netflix common stock has a beta, b, of 0.6. The
risk-free rate is 6 %, and the market return is 12%.
a. Determine the risk premium on Netflix common stock.
b. Determine the required return that Netflix common stock
should provide.
c. Determine Netflix's cost of common stock equity using the
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Suppose Intel stock has a beta of 1.8, whereas Boeing stock has
a beta of 0.84. If the risk-free interest rate is 3.8 % and the
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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...

Beta and required rate of return
A stock has a required return of 11%; the risk-free rate is 7%;
and the market risk premium is 3%.
What is the stock's beta? Round your answer to two decimal
places.
If the market risk premium increased to 9%, what would happen
to the stock's required rate of return? Assume that the risk-free
rate and the beta remain unchanged.
If the stock's beta is greater than 1.0, then the change in
required rate...

Assume the market risk is 8% and risk-free rate is 2%. You have
a portfolio with $15,000 invested in Stock A with a beta of 1.2,
$8,000 in Stock B with a beta of 1.8, and $12,000 in Stock C with a
beta of 2.0. What is the beta and expected return of the
portfolio?

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