Question

Enchancia Corp stock has a beta of 1.19, the current risk free rate is 2.84% and...

Enchancia Corp stock has a beta of 1.19, the current risk free rate is 2.84% and the return on the market is 14.88%. What is the required return for the stock? Include your answer as a percentage with two decimals, ex 4.05%)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Information provided:

Risk free rate= 2.84%

Beta= 1.19

Return on market= 14.88%

The expected return is calculated using the Capital Asset Pricing Model (CAPM)

The formula is given below:

Ke=Rf+b[E(Rm)-Rf]

Where:

Rf=risk-free rate of return which is the yield on default free debt like treasury notes

Rm=expected rate of return on the market.

Rm-Rf= Market risk premium

b= Stock’s beta

Ke= 2.84% + 1.19*(14.88% - 2.84%)

     = 2.84% + 14.33%

     = 17.17%.

In case of any query, kindly comment on the solution.

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
The company's stock has a beta equal to 1.22 , the risk-free rate is 4.5 percent,...
The company's stock has a beta equal to 1.22 , the risk-free rate is 4.5 percent, and the market risk premium is 7.0 percent. What is your estimate of the stock's required rate of return? Answer in a percentage without the % sign, and round it to two decimal places, i.e., 10.54 for 10.54% (or 0.1054). A company has just paid a dividend of $ 3 per share, D0=$ 3 . It is estimated that the company's dividend will grow...
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...
Suppose the market return is 8%, the risk-free rate is 1% and the beta for a...
Suppose the market return is 8%, the risk-free rate is 1% and the beta for a given stock is 1.2. Answer the following questions based on this information: What is the required return for this stock? If the beta increases by 50% (but risk-free rate remains 1%), what will be the new required return for the stock? What is the percentage-wise change in required return compared to your answer to A) above? If the market return increases by 50% (but...
A stock has a beta of 1.8. The risk-free rate is 2%. Assume that the CAPM...
A stock has a beta of 1.8. The risk-free rate is 2%. Assume that the CAPM holds. A: What is the expected return for the stock if the expected return on the market is 11%? 3+ Decimals B: What is the expected return for the stock if the expected market risk premium is 11%? 3+ Decimals
The stock of WeAllWantToBeFinanceStudents Company has a beta of 0.5. The current risk-free rate of return...
The stock of WeAllWantToBeFinanceStudents Company has a beta of 0.5. The current risk-free rate of return is 2.75% and the market risk premium is 6%. SHOW ALL WORK FOR FULL CREDIT. a) (6 pts) What is the required rate of return on this stock? b) (4 pts) If the expected rate of return on the stock investment is 6%, is this a good buy or a bad buy? Explain fully.
1. The risk-free rate is 2.3% and the market risk premium is 5.5%. A stock has...
1. The risk-free rate is 2.3% and the market risk premium is 5.5%. A stock has a beta of 1.3, what is its expected return of the stock? (Enter your answers as a percentage. For example, enter 8.43% instead of 0.0843.) 2. Calculate the expected return on a stock with a beta of 1.59. The risk-free rate of return is 4% and the market portfolio has an expected return of 10%. (Enter your answer as a percentage. For example, enter...
The risk-free rate is 7%; Stock A has a beta of 2.0; Stock B has a...
The risk-free rate is 7%; Stock A has a beta of 2.0; Stock B has a beta of 1.0; and the market risk premium, rM – rRF, is positive. Which of the following statements is CORRECT? a. Stock A's required rate of return is twice that of Stock B. b. If Stock B's required return is 11%, then the market risk premium is 5%. c. If the risk-free rate remains constant but the market risk premium increases, Stock A's required...
A stock has a required return of 13%; the risk-free rate is 5%; and the market...
A stock has a required return of 13%; the risk-free rate is 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 10%, what would happen to the stock's required rate of return? Assume the risk-free rate and the beta remain unchanged. New stock's required rate of return will be  %. Round your answer to two decimal places.
Stock A has a beta of 0, the risk-free rate is 4% and the return on...
Stock A has a beta of 0, the risk-free rate is 4% and the return on the market is 9%. If the market risk premium changes by 1%, by how much will the required return on Stock A change?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT