Question

a) Assume that the risk-free rate of interest is 4% and the expected rate of return...

a) Assume that the risk-free rate of interest is 4% and the expected rate of return on the market is 14%. A share of stock sells for £68 today. It will pay a dividend of £3 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year?

b) Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 6%. The following are well-diversified portfolios:

Portfolio

Beta on F1

Beta on F2

Expected Return

A

1.7

2.2

33%

B

2.7

-0.22

30%

What is the risk premium for each of the two factors?

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A.) Assume that the risk-free rate of interest is 6% and the expected rate of return...
A.) Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. A stock has an expected rate of return of 4%. What is its beta? B.) Assume that both portfolios A and B are well diversified, that ?(?a ) = 12%, and ?(?b ) = 9%. If the economy has only one factor, and ? a = 1.2, whereas ? b = 0.8, what must be the risk-free rate?
Assume that the risk-free rate of interest is 4% and the expected rate of return on...
Assume that the risk-free rate of interest is 4% and the expected rate of return on the market is 14%. A share of stock sells for $55 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 1.5. What do investors expect the stock to sell for at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Consider the multifactor APT. There are two independent economic factors, F1 and F2. The risk-free rate...
Consider the multifactor APT. There are two independent economic factors, F1 and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: Portfolio ββ on F1 ββ on F2 Expected Return A 1.0 2.0 19 % B 2.0 0.0 12 % Assuming no arbitrage opportunities exist, the risk premium on the factor F1 portfolio should be
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 10%,...
Suppose that there are two independent economic factors, F1 and F2. The risk-free rate is 10%, and all stocks have independent firm-specific components with a standard deviation of 40%. Portfolios A and B are both well-diversified with the following properties: Portfolio Beta on F1 Beta on F2 Expected Return A 1.6 2.0 30 % B 2.5 –0.20 25 % What is the expected return-beta relationship in this economy? Calculate the risk-free rate, rf, and the factor risk premiums, RP1 and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 53%. Portfolios A and B are both well diversified.   Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.7 1.9 32 B 1.8 -0.7 13 What is the expected return–beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return–beta relationship E(rP) =...
Problem 2 [3pts] Suppose portfolios A and B are both well-diversified with the following properties: Portfolio...
Problem 2 [3pts] Suppose portfolios A and B are both well-diversified with the following properties: Portfolio β1 on F1 β2 on F2 Expected return A 0.7 1.1 9.6% B -0.2 0.9 3.4% There are two independent economic factors, F1 and F2. The risk-free rate is 1%. What is the expected return-beta relationship in this economy? (Hint: find risk premium for each factor)
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 48%. Portfolios A and B are both well diversified. Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.6 2.3 38 B 2.2 -0.6 8 What is the expected return–beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and...
Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 40%. Portfolios A and B are both well diversified. Portfolio Beta on M1 Beta on M2 Expected Return (%) A 1.8 2.2 30 B 2.1 -0.5 8 What is the expected return–beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected Return - beta relationship...
The risk-free rate of return is 8%, the expected rate of return on the market portfolio...
The risk-free rate of return is 8%, the expected rate of return on the market portfolio is 15%, and the stock of ABC Company has a beta coefficient of 1.2. ABC Company pays out 40% of its earnings in dividends, and the latest earning announced were $10 per share. Dividend were just paid and are expected to be paid annually. You expect that ABC Company will earn a ROE of 20% per year on all reinvested earnings forever
What is the required return of the following well-diversified portfolio if the risk-free rate is 2%...
What is the required return of the following well-diversified portfolio if the risk-free rate is 2% and the return on the market is 9%? Stock Amount Beta Expected Return A $100,000 1.2 10 B $200,000 0.8 8 C $100,000 1.4 12
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT