Question

Briefly describe how you can estimate a​ stock's required rate of return.

Briefly describe how you can estimate a​ stock's required rate of return.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Required rate of return for an equity or stock can be calculated using the CAPM (Capital Asset Pricing formula) and is given by

Required rate of return = Risk free rate + Beta *(Market risk premium)

Where Risk free rate is generally the yield on risk free treasury securities

Beta is found by regressing the stock returns against the index return

Market risk premium is the excess of market return over the risk free rate.

Further, if a stock has just declared dividend(D0) and current market price of P0 with a growth in dividends of g, then

required rate of return = (D0/P0) + g

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
Describe what beta is, how is it measured, and why it affects a stock's expected return.
Describe what beta is, how is it measured, and why it affects a stock's expected return.
BETA AND REQUIRED RATE OF RETURN a. A stock has a required return of 11%; the...
BETA AND REQUIRED RATE OF RETURN a. A stock has a required return of 11%; the risk-free rate is 5%; and the market risk premium is 5%. What is the stock's beta? Round your answer to two decimal places. b. If the market risk premium increased to 10%, 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 less than 1.0, then the change in...
Describe what the CAPM is, and illustrate how it can be used to estimate a stock’s...
Describe what the CAPM is, and illustrate how it can be used to estimate a stock’s required rate of return. (Please Explain Thoroughly)
BETA AND REQUIRED RATE OF RETURN A stock has a required return of 12%; the risk-free...
BETA AND REQUIRED RATE OF RETURN A stock has a required return of 12%; 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 7%, 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 equal to 1.0, then the change in required rate...
Beta and required rate of return A stock has a required return of 11%; the risk-free...
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...
You estimate that a stock's dividend will grow at a rate of 12% for two years...
You estimate that a stock's dividend will grow at a rate of 12% for two years and then slow to 3% forever and ever and ever and ever... You require a 12% rate of return and the current dividend is $2 per share. What is the intrinsic value of the stock? $26.89 ** that is the answer my professor provided, I have not been able to come up with the same**
Problem 8-5 Beta and required rate of return A stock has a required return of 11%;...
Problem 8-5 Beta and required rate of return A stock has a required return of 11%; the risk-free rate is 6.5%; and the market risk premium is 4%. 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 equal to 1.0, then the change in...
What are the components of the required rate of return on a share of stock? Briefly...
What are the components of the required rate of return on a share of stock? Briefly explain each component.
A stock has a required return of 13%; the risk-free rate is 3.5%; and the market...
A stock has a required return of 13%; the risk-free rate is 3.5%; and the market risk premium is 6%. 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 of return will be less than...
A stock has a required return of 12%; the risk-free rate is 4%; and the market...
A stock has a required return of 12%; the risk-free rate is 4%; and the market risk premium is 4%. What is the stock's beta? Round your answer to two decimal places. If the market risk premium increased to 8%, 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 less than 1.0, then the change in required rate of return will be greater than...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT