Estimate expected returns, find the beta and return on fund
Estimate expected returns and find the beta and the return on the fund.
1. You use a factor model to estimate expected returns on Daemon stock. The risk-free rate is 3%. You have the following information:
Factor Factor Beta Risk Premium
GNP .80 .49%
Inflation 1.20 -.83%
Market .45 6.36%
2. Honest Dave's Used Mutual Fund has a $200 million portfolio invested in the following stocks:
Stock Investment Beta
Fraud Motors 60M 0.5
BIM 50M 2.0
Motel Electronics 30M 4.0
Major Foods 40M 1.0
William Television Company 20M 3.0
a) The expected risk-free rate is 4% and the expected return on the market is 16%. Find the beta and the return on the fund.
b) Suppose management receives a proposal to purchase a new stock. The investment needed to take a position in the stock is 50 million; it will have an expected return of 18% and its estimated beta coefficient is 2.50. Should the stock be purchased? At what expected return would management be indifferent to purchasing the stock?
The solution carefully presents the formulas and calculation to understand the answers to the problem. There is a short paragraph of narrative in response to part b.
... following return forecasts and risk estimates for two ... b). Using the estimated expected returns for Part a ...Expected Return on stock = Risk-free rate + Beta x ...
... are the intercept and slope coefficient estimates; It is ... for an index, and the estimated slope coefficient ... To estimate the reported beta coefficients for each ...
... risk-free rate is 6%, whereas market returns have the ... a. What is the estimated equation for the Security ... is $50 million, it would have an expected return of 15 ...
... between the observed price and that which Hall estimates? ... e. Estimate the beta of this portfolio and ... according to the security market Expected return on the ...
... the rate of return that shareholders require or expect to earn ... you gathered in 1 through 3 to estimate the rate ... is, say, 3% per year, than the expected rate of ...
... rm)-rf] Additional return we must expect to receive ... we will demand additional expected returns Constant Growth ... Assignment Instructions Find an estimate of the ...
... probability distribution for future market returns is realistic ...expected return of 15%, and its estimated beta is 1.5 ... At what expected rate of return should Kish ...
... that a corporation should expect is not related to ... essence corporations are able to use CAPM to estimate. ... Average cost of capital and the expected returns to a ...
... 9 - 34 WACC Estimates for Some Large US Corporations ...Estimate the cost of capital that the division would have ... Methods for Estimating Beta for a Division or a ...
... stock versus those on the market, estimate the slope ... He is expecting to receive an additional $250,000 from a ...Expected Return Beta a. 9.01% 1.70 b. 7.06% 0.00 c ...
