Question

A stock with a beta of 0.5 has an expected rate of return of 10%. If the market return this year turns out to be 9 percentage points below expectations, what is your best guess as to the rate of return on the stock? Stock Return: ___%

Answer #1

since the market return and the risk free rate are unknown, we cannot estimate the expected return using the CAPM model.

Although we can guess the expected return using the stock's beta
since beta is an estimate of stock's co-movement with resepct to
the market

the formula for beta is:

Covariance (stock's return, market return) / variance (market
return)

A beta of 1 indicates that if the market return moves by 1 unit, the stock's return would approximately change by 1 unit as well.

From a beta of 0.5, we can estimate that if the market return was 9 percentage points below expectations, the stock's return would be approximately around 4.5 percentage points below expectations, that is, the stock's return would be around 6.5%

3. A share of stock with a beta of 0.69 now sells for $50.
Investors expect the stock to pay a year-end dividend of $4. The
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Calculate the opportunity cost of capital. Is the stock a good or
bad buy? What will investors do? (Do not round intermediate
calculations. Round your opportunity cost of capital calculation as...

stock A has a beta of 0.5 and investors expect it to return 5%.
on the other hand, stock B has a beta of 1.5 and investors expect
it to return 10% use the CAPM to find:
1.The market risk premium
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Stock ABC has an expected return of 6.47%, based upon a beta of
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Stock Z has a beta of 0.5 and an expected return of 8%. If
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A stock has a beta of 1.65, the expected return on the market is
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The stock of WeAllWantToBeFinanceStudents Company has a beta of
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Investors expect the market rate of return in the coming month
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