Question

1. () 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?    
2. (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%?
3. (A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. What is the the current yield on this?
4. () Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $ After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, what is the intrinsic value of the stock today?
5. (10 Points) 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?    
6. ) 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 of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%. What is the the current yield on this?
7. Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $ After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, what is the intrinsic value of the stock today?

Answer 1

() 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?

solution

​​​​CAPM = Rf + ( Rm - Rf ) B

= 0.056 + ( 0.125 - 0.056 ) 1.25

= 0.056 + ( 0.069 ) 1.25

= 0.056 + 0.08625

= 0.14225

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%?

solution

CAPM = Rf + ( Rm - Rf ) B

= 5 % + ( 15% - 5% ) 17%

   = 175 %

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?   

Solution

CAPM = Rf + ( Rm - Rf ) B

=0.056 + ( 0.125 - 0.056 ) 1.25

= 0.9185