Part 1: Dallas Star Inc.'s stock has a 40% chance of producing a 5% return, and a 60% chance of producing a 12% return. What is the firm's expected rate of return? What is the firm's Standard Deviation? What is the firm's Coefficient of Variation?
Part 2: Calculate the required rate of return for Dallas Star Inc., assuming that (1) investors expect a 1.5% rate of inflation in the future, (2) the real risk-free rate is 2.0%, (3) expected market return is 8% and (4) the firm has a beta of 1.5. (Recall that you need to find out market risk premium first.)
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