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Beta and Required Return of a Project

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.

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

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

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

Required return

Millar Motors has a beta of 1.30 and an expected dividend growth rate of 5.00% per year. The T-bill rate is 3.00%, and the T-bond rate is 6.00%. The annual return on the stock market during the past 3 years was 15.00%. Investors expect the annual future stock market return to be 12.00%. Using the SML, what is Millar's required r

Stock Value to Determine Purchasing Opportunities

Wayne, Inc.'s outstanding common stock is currently selling in the market for $33. Dividends of $2.30 per share were paid last year, and the company expects annual growth of 5 percent. A. What is the value of the stock to you, given a 15 percent required rate of return ? B. Determine the expected rate of return for the stock

Using the SML, what is Bertin's required rate of return?

Bertin Bicycles 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 11.50%. Using the SML, what is Bertin's

Expected market return and required rate of return

Assume that the risk-free rate is 5% and the market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?

What is his portfolio's beta?

Tom O'Brien has a 2-stock portfolio with a total value of $100,000. $75,000 is invested in Stock A with a beta of 0.75 and the remainder is invested in Stock B with a beta of 1.42. What is his portfolio's beta?

Calculating required rate of return, present value, stock price

Can you help me get started with this assignment? The last dividend that was paid yesterday (D0) on a Corporation's common stock was $8.00, and the expected growth rate is 0 percent. The required rate of return on this stock is 10 percent. 1. What is the present value of the future growth opportunity represented by the 5%

Determine Required Rate of Return: ABC Health Care Center

ABC Health Care Center, a growing health care organization, wishes to determine the required return on an asset. Asset X has a beta of 2.0. The risk-free rate of return is found to be 7 percent; the return on the market portfolio of assets is 11 percent.

Required Return on Equity

A firm with a required return of 10 percent for operations has a book value of net debt of $2,450 million with a borrowing cost of 8 percent and a tax rate of 37 percent. The firm's equity is worth $8,280 million. What is the required return for its equity?

Financial Mangement

The required return by investors is important to finiancial managers for all the following reasons except: a. it influences the firm's cost of financing b. it influences their stock price c. it is the primary driver of their financial ratios d. it helps when pricing new issues of securities

This problem asks for the net investment required for the purchase of a new asset.

Ten years ago J-Bar Company purchased a lathe for $250,000. It was being depreciated on a straight-line basis to an estimated $25,000 salvage value over a 15 year period. The firm is considering selling the old lathe and purchasing a new one. The new lathe would cost $500,000. The firm's marginal tax rate 40 percent. Determine t

High Flier's common stock: Whats is the expected return?

High Flier's common stock is expected to return 28 percent in a boom economy,14 percent in a normal economy, and -32 percent in a recession. The probability of a boom is 20 percent, of a normal economy is 70 percent, and of a recession is 10 percent. What is the expected return on High Flier's common stock? a. 10.9 percent


A publicly traded construction company has had the following stock prices (in attached spreadsheet), the index prices are also available (second page of spreadsheet). calculate the beta using Linest. The market beta is 1.20. If the calculated beta varies from published, explain why. Stock Prices: Date,Open,High,Low,Close,Vo

Beta for Bonds Money Market Instruments

Locate the beta for each security. Use .3 beta for bonds and 0 for money market instruments Securities are: Cisco Systems, Inc. General Electric Company Motorola, Inc. Microsoft Dell Also i. Perform another risk assessment, using these weightings. ii. Change the weights of the vehicles to emphasize low-

Why should a stock beta and expected return be related?

Why should a stock beta and expected return be related while no such relationship exists between a stock's standard deviation and expected returns? Why is the standard deviation of a portfolio typically less that the average of the betas of the stocks in the portfolio?

Dividends less than required return

There are three pieces needed to calculate the value of a stock using the dividends growth model. The current dividend payout and the growth rate of the dividend can be found online. However, the required rate of return must be greater than the growth rate of the dividend. What happens if the growth rate in dividends i

Calculate beta and cost of equity capital for a company

Last week the price of a company's common stock closed at $27.00 per share. Use the weekly stock price and index value data in the table below to compute the company's beta, then use the beta to estimate the company's required cost of equity. Assume the appropriate risk-free rate is 5.5% and the market risk premium is 6.5%.

Business: Required Rate of Return

Stock R has a beta of 1.5 , stock S has a beta of 0.75; the expected rate of return on an average stock is 13% and the risk-free rate of return is 7%. By how much does the required return on the riskier stock exceed the required return on the less risky stock?

Calculate required return on preferred stock

James River $3.38 preferred is selling for $45.25. The preferred stock is non-growing. What is the required return on preferred stock? If you use the spreadsheet method shown in the workshop, assume "forever" means 200 years. If you use the Excel formula, assume payments are made at the end of the period.

Formula to find the portfolio return for the year

Find 5 actively traded stocks and record their prices at the start and the end of the most recent calendar year. Also, find the amount of dividends paid on each stock during that year and each stock's beta at the end of the year. Assume that the 5 stocks were held during the year in an equal dollar weighted portfolio (20% in eac

Portfolio expected return, expected rate of return on the company's stock, effect of changes in inflation and market risk premium on return on stocks, operating net cash, leverage

Question 11: Stock A has a beta of 0.8, Stock B has a beta of 1.0, and Stock C has a beta of 1.2. Portfolio P has 1/3 of its value invested in each stock. Each stock has a standard deviation of 25%, and their returns are independent of one another, i.e., the correlation coefficients between each pair of stock is zero. Assuming t