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# Beta and Required Return of a Project

### Beta value, firm systematic risk and required return rate

1. The stock of Eastman Kodak has an estimated beta of 1.6. How would you interpret this beta value? How would you evaluate the firm's systematic risk. 2. The stock of Apple, Inc, has an estimated beta of 1.5. The current risk free rate is 5% and the market return is 7.4%. What is the required rate of return on he stock?

### Required return rate intrinsic value of consolidated stock

One of your client's is looking at an investment in the Consolidated Sprockets, Inc. which sells for \$52.60 per share, and paid a recent annual dividend of \$2.40. Dividends are expected to increase at 5.45% annually. The current risk free rate is 4.15% and the NYSE market index is returning 14.71%. The beta of Consolidated is .8

### The answer to Return on Investment

Given the following data: Sales \$50,000 Net operating income \$5,000 Contribution margin \$20,000 Average operating assets \$25,000 Stockholders' equity \$15,000 Return on investment (ROI) would be:

### Constant growth rate: required return and stock price

Alexander Corp. will pay a dividend of \$2.60 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever. If you want a 15 percent rate of return, how much will you pay for the stock? What if you want a 10 percent rate of return? What does this tells you about the relationship bet

### Beta and required return calculation

The riskless return is currently ^%, 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? see attached for table.

### CCT, Inc: What is the Value of the Stock with a Required return?

CCT, Inc. expects its current annual \$3 per share common stock dividend to remain the same for the foreseeable future. Therefore, the value of the stock to an investor with a required return of 15% is?

### If the company's expected and required rate of return is 15%, which of the following statements is CORRECT?

A stock is expected to pay a year-end dividend of \$2.00, i.e., D1 = \$2.00. The dividend is expected to decline at a rate of 5% a year forever (g = -5%). If the company's expected and required rate of return is 15%, which of the following statements is CORRECT? a. The company's current stock price is \$20. b. The company

### 12 Managerial Finance Problems: After tax yield, marginal rate, beta, expected return

MANAGERIAL FINANCE: Practice Problems (Please provide the formula for each problem and calculations) 1. Chris recently purchased a corporate bond which yields 12%. Chris is the 39% combined federal and state tax bracket. What is the bond's after-tax yield? 2. Corporate bonds issued by Porter Corporation currently yield

### Is an individual required to file a return if he or she owes no tax?

Is an individual required to file a return if he or she owes no tax?

### Stock portfolio: Compute beta coefficient, arithmetic average returns, deviation

You are given the following set of data: Historical Rates of Return Year NYSE Stock X 1 (26.5%) (14.0%) 2 37.2 23.0 3 23.8 17.5 4 (7.2) 2.0 5 6.6 8.1 6 20.5 19.4 7 30.6 18.2 a. Use a spreadsheet (or a calculator with a linear regression function) to determine Stock X's beta coefficient. b. Det

### Required rate of return on the market, preferred stock

1. The returns on the market, the returns on United Fund (UF), the risk-free rate, and the required return on the United Fund are shown below. Assuming the market is in equilibrium and that beta can be estimated with historical data, what is the required return on the market, rM? Year Market UF 2003 -9%

### Return on the market and required rate of return

GE's beta is approximately 1.1, according to the Value Line Investment Survey. Assume the riskless return is 5% and the market risk premium is 10%. What is the return on the market? What is GE's required rate of return?

### James River \$3.38 preferred is selling for \$45.25.

A12. (Required return for a preferred stock) James River \$3.38 preferred is selling for \$45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?

### Investments: expected return, beta, break-even, holding period return, risk premium

Please see attached file. 1) You are the money manager of a \$10 million investment fund that consists of 2 stocks with the following investment and betas. Assume that the CAPM holds, and kRF=6%, kM=14%. Stock Investment Beta A \$ 4 million 1.2 B \$ 6 million 1.4 A. What is the expected return of the fund? B. What is beta

### Best investment according to the Wall Street Journal

You have been scouring The Wall Street Journal looking for stocks that are 'good values' and have found the following five candidates for addition to your portfolio: Stock Expected Return Beta A 11.00% 1.1 B 7.00% 1.0 C 10.50% 1.4 D 5.00% 0.8 E 11.50% 0.7 However, you can afford to b

### Learning to calculate Beta

I need to learn how to calculate the current Beta for each security (use .3 Beta for bonds and 0 for money market instruments for these companies) GE, Wal-Mart, Citibank, Ford, and Dell Excel or Word would be fine, thanks.

### Calculate Stock's Beta: Required Rate of Return & Risk Free Rate

A stock has a required return of 11 percent; the risk free rate is 7 percent; and the market risk premium is 4 percent. What is the stock's beta? If the market risk premium increased to 6 percent what would happen to the stock's required rate of return? Assume the risk free rate and the beta remained unchanged.

### Capital City Construction: Return on Equity

Capital City Construction (CCC) needs \$1 million of assets to get started, and it expects to have a basic earning power ratio of 20%. CCC will own no securities, so all of its income will be operating income. If it so chooses, CCC can finance up to 50% of its assets with debt, which will have an 8% interest rate. Assuming a 40%

### Difference Between Average Return and Realized Return

1. The questions for this assignment is to explain the difference between the average return calculated in Problem 10-6 (a) and the realized return calculated in 10-5. Are both numbers useful? If so, explain why. To do this assignment the two problems had to be answered. Although you will see problem 10-5 and10-6 in th

### Correctly priced and over/underpriced securities

The market has an expected return of 10% and the risk-free rate is 4%. Based on the security market line implied by this information, which of the following securities are correctly priced and which are over/underpriced? Beta Actual Return Stock 1 0.60 7.00% Stock 2 1.00 11.00% Stock 3

### Finding portfolio beta

You have a \$2 million portfolio consisting of a \$100,000 investment in each of 20 different stocks. The portfolio has a beta of 1.1. You are considering selling \$100,000 worth of one stock with a beta of 0.9 and using the proceeds to purchase another stock with a beta of 1.4. What will the portfolio's new beta be after these

### PORTFOLIO BETA

10. Suppose you hold a portfolio consisting of a \$10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose you decided to sell one of your stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.65. What would the portfolio's new beta be? 1.

### Determining Portfolio New Beta: Example Problem

You hold a diversified \$100,000 portfolio consisting of 20 stocks with \$5,000 invested in each. The portfolio's beta is 1.12. You plan to sell a stock with b = 0.90 and use the proceeds to buy a new stock with b = 2.50. What will the portfolio's new beta be? a) 1.200 b) 1.152 c) 1.308 d) 0.912 e) 1.008

### Affect a companies required rate of return

Company A has a beta of 0.70, while Company B's beta is 1.30. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.) 4.74% 4.05% 3.7

### Portfolio Return

Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market's required rate of return is 16.25%, the risk-free rate is 7.00%, and the Fund's assets are as follows: Stock Investment Beta A \$200,000 1.50 B \$300

### Rate of Return

Mulherin's stock has a beta of 1.23, its required return is 8.75%, and the risk-free rate is 4.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.) 5.94% 8.63% 7.92% 7.21% 6.26%

### Required Rate of Return

Mikkelson Corporation's stock had a required return of 15.00% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Then an increase in investor risk aversion caused the market risk premium to rise by 2%. The risk-free rate and the firm's beta remain unchanged. What is the company's new required rat

### Rate of Return

Nagel Equipment has a beta of 0.88 and an expected dividend growth rate of 4.00% per year. The T-bill rate is 4.00%, and the T-bond rate is 5.25%. The annual return on the stock market during the past 4 years was 10.25%. Investors expect the average annual future return on the market to be 15.00%. Using the SML, what is the firm

### Rates of Return

1. Company A has a beta of 0.70, while Company B's beta is 0.80. The required return on the stock market is 11.00%, and the risk-free rate is 4.25%. What is the difference between A's and B's required rates of return? (Hint: First find the market risk premium, then find the required returns on the stocks.) 0.57% 0.77%