(6-13): Historical Returns: Expected and Required Rates of Return You have observed the following returns over time: Year Stock X Stock Y Market 2003 14% 13% 12% 2004 19 7 10 2005 216 25 212 2006 3 1 1 2007 20 11 15 Assume that the risk-free rate is 6% and the market risk premium is
At the end of the year 2004 the Office Equipment Industry had free cash flow to equity (FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected Year Growth Rate 2005 10% 2006 15% 2007 20% 2008 25% 2009 20% 2010 15% 2011 10%
USE THE FOLLOWING INFORMATION FOR THE NEXT FOUR PROBLEMS Stock Rit Rmt ai Beta A 10.6 15 0 0.8 Z 9.8 8.0 0 1.1 Rit = return for stock i during period t Rmt = return for the aggregate market during period t 1. What is the abnormal rate of return for Stock A during period t using only the aggregate market return (
1) Morgan Entertainment has a levered beta of 1.20. The firm's capital structure consists of 40% debt and 60% equity and it has a corporate tax rate of 40%. What is Morgan's unlevered beta? 2) Rhino Inc. hired you as a consultant to help them estimate their cost of capital. You have been provided with the following data: D1
MSA Computer Corporation manufactures two models of minicomputers, the Alpha 4 and the Beta 5. The firm employs five technicians, working 160 hours each per month, on its assembly line. Management insists that full employment (i.e., all 160 hours of time) be maintained for each worker during next month's operations. It requires 20 labor hours to assemble each Alpha 4 computer and 25 labor hours to assemble each Beta 5 model. MSA wants to see at least 10 Alpha 4s and at least 15 Beta 5s produced during the production period. Alpha 4s generate$ 1,200 profit per unit, and Beta 5s yield $1,800 each. Determine the most profitable number of each model of minicomputer to produce during the coming month.
MSA Computer Corporation manufactures two models of minicomputers, the Alpha 4 and the Beta 5. The firm employs five technicians, working 160 hours each per month, on its assembly line. Management insists that full employment (i.e., all 160 hours of time) be maintained for each worker during next month's operations. It requires
Exaplain why you would change your nominal required rate of returne if you expected the rate of inflation to go from 0 (NO INFLATION) to 4 percent. Give an example if what would happen if you didn't change your required rate of return under these conditions.
Beta and Required Return The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here. 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 Grow
My portfolio which has a beta of 1.14 consists of three mutual funds: an international fund, a utility fund, and a technology fund. The international fund has a beta of 1.5 and makes up to 20% of the portfolio. The utility fund has a beta of 0.5 and the technology fund has a beta of 1.3. If the portfolio's beta equals 1.14, how
Suppose that you are interested in buying the stock of a company that has a policy of paying a $6 per share dividend every year. Assuming no changes in the firm's policies, what is the value of a share of stock if the required rate of return is 11%?
3. When is a taxpayer required to file a federal income tax return? What are the consequences of failing to file a tax return that you were otherwise required to file? When would a taxpayer with no income tax liability and no withholding want to file a tax return?
Can you help me get started with this assignment? TABLE 1: Market Data Middle Ltd Extra Inc. Year Market Index Stock Price Dividend Stock Price Dividend 0 7500.00 30.00 75.00 1 7835.76 30.68 0.74 75.60 5.30 2 8715.18 36.49 0.76 76.32 5.37 3 9120.94 42.
6) Albright Motors is expected to pay a year end dividend of $3 a share (D1=$3). The stock currrently sells for $30 a share. The required (and expected) rate of return on the stock is 16%. If the dividend is expected to grow at a constant rate, g, what is g? 7) You work for smith company as a consultant. Kroncke target c
Keith Johnson has $100,000 invested in a 2-stock portfolio. $30,000 is invested in Potts Manufacturing and the remainder is invested in Stoh's Corporation. Potts' beta is 1.60 and Stohs' beta is 0.60. What is the portfolio's beta?
Problem:Please complete all of the problems on the attached spreadsheet, please include formulas on the spreadsheet and put answers on the spreadsheet underneath each question. Please complete all ...there is moreshow problemPlease complete all of the problems on the attached spreadsheet, please include formulas on the spreadsh
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 equal amounts invested in each of the three stocks. Each of the stocks has a standard deviation of 25%. The returns on the three stocks are independent of one another (i.e., the correlation coefficients all equal zero). Assume th
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? Why is beta an important part of the equation? Explain.
Using the formula Rate of return on investment) = Profit margin x Investment turnover Calculate the return of investment for the following division results: Sales $8,928,000 Income from operation $650,000 Profit margin $ 4,385,000 a) Margin __________/_______________=______________ Investment turnover _________
A stock has a required return of 11%; the risk-free rate is 7%; and the market risk premium is 4%. a. What is the stock's beta? b. If the market risk premium increased to 6%, what would happen to the stock's required rate of return? Assume the risk-free rate and the beta remain unchanged.
A. What is the expected return and volatility (standard deviation) of your investment? b. What is your realized return if J goes up 25% over the line? c. What return do you realize if J falls by 20% over the year?
Suppose you have $100,000 in cash, and you decide to borrow another $15,000 at a 4% interest rate to invest in the stock market. You invest the entire $115,000 in a portfolio J with a 15% expected return and a 25% volatility. a. What is the expected return and volatility (standard deviation) of your investment? b. What
If you earn a 10% nominal return on an investment, are you really 10% more wealthy? a. No, because there may be inflation, which causes your real return to be less b. No, because if inflation = 0, then your real return is less c. Yes, because you really have 10% more dollars d. Yes, because inflation does NOT effect your r
*see attached for table* You own a portfolio consisting of the following stocks: Multiple Choice - calculate expected portfolio return and portfolio beta: A. Expected portfolio return 10.6% and portfolio beta .90. B. Expected portfolio return 15.5% and portfolio beta 1.20. C. Expected portfolio return 17.8
2. You have a $1,000 portfolio which is invested in stocks A and B plus a risk-free asset. $400 is invested in stock A. Stock A has a beta of 1.3 and stock B has a beta of .7. How much needs to be invested in stock B if you want a portfolio beta of .90? A. $0 B. $268 C. $482 D. $543 E. $600
Suppose you hold a diversified portfolio consisting of $10,000 invested equally in each of 10 different common stocks. The portfolio's beta is 1.12. Now suppose that 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 1.95. What would the portfolio's ne
ABC Manufacturing has a beta of 1.65, while XYZ Industries has a beta of 0.85. The required return on the stock market is 12.00% and the risk-free rate is 5.00%. What is the difference between ABC and XYZ's required rates of return?
A company's production facility, consisting of two identical machines, currently caters only to product A. The annual demand for the product is 4000 units. Management has now decided to introduce another product, B, which uses the same facilities as that of product A. Product B has an annual demand of 2000 units. In view of the
Solar Corporation has $500,000 of assets and it uses only common equity capital (zero debt). Its sales for the last year were $600,000 and its net income after taxes was $25,000. Stockholders recently voted in a new management team that has promised to lower costs and get the return on equity up to 9.25%. What profit margin woul
If you wanted to retire on 75k per year, and you are 35 years old and have 25k saved, how much do you need to put away every year so that you can retire? Please tell me what rate of return you would use and why. We will assume you will live for 25 years after you retire. For this exercise, you can spend every penny and not wo
The real risk-free rate is 2.00%, investors expect a 3.00% future inflation rate, the market risk premium is 4.70%, and Kohers Enterprises has a beta of 1.10. What is the required rate of return on Kohers' stock? a. 9.43% b. 9.67% c. 9.92% d. 10.17% e. 10.42%
Yonan Corporation's stock had a required return of 11.50% last year, when the risk-free rate was 5.50% and the market risk premium was 4.75%. Now suppose there is a shift in investor risk aversion, and the market risk premium increases by 2%. The risk-free rate and Yonan's beta remain unchanged. What is Yonan's new required r
Boomer Products, Inc. manufactures "no-inhale" cigarettes. As their target customers age and pass on, sales of the products are expected to decline. Thus, demographics suggest that earnings and dividends will decline at a rate of 5% annually forever. The firm just paid a dividend of $4; given a required return of 10%, what shoul