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    Beta and Required Return for Chicago Gear

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    1)

    (Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.

    a. Calculate the expected returns on the stock market and on Chicago Gear stock.
    b. What is Chicago Gear's beta?
    c. What is Chicago Gear's required return according to the CAPM?

    REALIZED RETURN
    State of the Market Probability that State Occurs Stock Market Chicago Gear
    Stagnant 0.20 (10%) (15%)
    Slow growth 0.35 10 15
    Average growth 0.30 15 25
    Rapid growth 0.15 25 35

    2)

    Common stock A has an expected return of 10%, a standard deviation of future returns of
    25%, and a beta of 1.25. Common stock B has an expected return of 12%, a standard deviation of future returns of 15%, and a beta of 1.50. Which stock is riskier?

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    https://brainmass.com/business/beta-and-required-return-of-a-project/beta-required-return-chicago-gear-397332

    Solution Preview

    Answer:
    1) We have,
    Risk free rate of return 6%
    Realized return:
    State of the Market Probability that State Occurs Stock Market Chicago ...

    Solution Summary

    This solution provides calculations formatted in an attached Excel file.

    $2.19

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