Question

QUESTION ONE A. You are presented with the following two stocks.

Stock Beta (β) Expected Return

A 1.4 25%

B 0.7 14%

Assuming that the Capital Asset Pricing Model (CAPM) assumptions hold true, calculate:

I. The return on the market.

II. The risk-free rate.

III. The risk premium for stock A.

Answer #1

The expected return and betas for three stocks are given
below:
Stock
EXPECTED RETURN (%)
BETA
A
11
1.4
B
9
1.2
C
10
1.7
Market returns, R m, is 8% and risk-free rate is 3%.
Which of the three stocks is undervalued according
to the CAPM?

As an analyst you have gathered the following information:
Security
Expected Standard Deviation
Beta
Security 1
25%
1.50
Security 2
15%
1.40
Security 3
20%
1.60
(i) If
the expected market risk premium is 6% and the risk-free rate is
3%, what will be the required rate of return on each of the above
securities, and which of the security has the highest required
return?
(ii) With
respect to the capital asset pricing model, if expected return for
Security 2...

Suppose you collect the information of two
stocks:
Expected Return
Standard Deviation
Beta
Stock A
13%
15%
1.6
Stock B
9.2%
25%
1.1
a. If you have a well-diversified portfolio of 50 stocks and you
are considering adding either Stock A or B to that portfolio, which
one is a riskier addition and why?
If you are a new investor looking for your first stock investment,
which is a riskier investment for you and why?
b. If the...

#24 Stock A has a beta of 1.2 and an expected return of 12%.
Stock B has a beta of 0.7 and an expected return of 8%. If the
risk-free rate is 2% and the market risk premium is 8%, what is
true about the two stocks? A. Stock A is underpriced and stock
B is overpriced B. Both stocks are underpriced
C. Stock A is overpriced and stock
B is underpriced
D. Both stocks are correctly priced
E. Both...

Question B4
(a) The beta of a stock is 1.25, the risk-free rate is 3%, and
the expected return on the market is 15%. If the actual returns of
the stock and the market are 15% and 12% respectively, calculate
the systematic portion and unsystematic portion of the unexpected
returns of the stock.
(b) Identify and explain briefly TWO disadvantages of
Fama-French Three-Factor Model over Capital Asset Pricing Model
(CAPM).

Need it ASAP, thanks
Here is a stock:
The beta is 1.65.
The expected return on the market is 8.3%.
The risk-free rate is 2.2%.
According to the Capital Asset Pricing Model, what must the
expected return of this stock be?
A.
15.61%
B.
12.27%
C.
9.86%
D.
10.52%

You form a portfolio by investing 55% of your money in a risky
stock with a beta of 1.4 and the rest of your money in a risk-free
asset. The risk-free rate and the expected market rate of return
are 0.06 and 0.12, respectively. According to capital asset pricing
model (CAPM), the expected return of the resulting portfolio
is:
A.
10.62%
B.
14.40%
C.
9.78%
D.
9.30%
E.
6.60%

********ASAP PLEASE********
******The expected return of stock 1 is 16.32%.
The expected return of stock 2 is 10.68%.
The beta of stock 1 is higher than the beta of stock 2 by
0.67.
If the Capital Asset Pricing Model holds, what is the expected
market risk premium?
A.
7.48%
B.
6.84%
C.
9.85%
D.
8.42%

Consider two stocks, A and B. Stock A has an expected return of
10% and a beta of 1.1. Stock B has an expected return of 16% and a
beta of 1.2. The market degree of risk aversion, A, is 4. The
variance of return on the market portfolio is 0.0175. The risk-free
rate is 5%. Required: (4*2.5 = 10pts) A. What is the expected
return of the market? B. Using the CAPM, calculate the expected
return of stock A....

(Stocks) A stock with a beta of 1.36 is expected to pay a $1.57
dividend over the next year. The dividends are expected to grow at
2.33% per year forever. What is the stock's value per share (to the
nearest cent, no $ symbol) if the risk-free rate is 0.21% and the
market risk premium (i.e., the difference between the market return
and the risk-free rate) is 7.79%? Note: You first need to find the
required rate of return (r)...

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