Suppose rRF = 5%, rM = 10%, and rA = 12%. a. Calculate Stock A's beta. b. If stock A's beta were 2.0, what would be A's new required rate of return?
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
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
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
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?
If Stocks 1 and 2 have expected returns of 9 percent and 10 percent per year, respectively, then what is the minimum expected annual return for Stock 3 that will enable Glenda to achieve her investment requirement?
In order to fund her retirement, Glenda requires a portfolio with an expected return of 12 percent per year over the next 30 years. She has decided to invest in Stocks 1, 2, and 3, with 25 percent in Stock 1, 50 percent in Stock 2, and 25 percent in Stock 3. If Stocks 1 and 2 have expected returns of 9 percent and 10 percent per
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?
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%
Part A The market portfolio is assumed to be composed of two securities, Investment X and Y as shown below. Determine based on the information given the Average return, Standard Deviation and Coefficient of Variation. Which is the better investment? Year Return X Return Y 1997 16.5% 17.5% 1998 14.2%
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.
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?
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
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 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
Please see the attached file. The next dividend payment by Carroll, Inc., will be $4.45 per share. The dividends are anticipated to maintain a 5 percent growth rate, forever. If the stock currently sells for $43 per share, the required return of the stock is percent The next dividend payment by Carroll, Inc., will be
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
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 according to the CAPM?
James River, $3.38 preferred dividend paying stock, is selling for $45.25. The preferred dividend is non-growing. What is the required return on James River preferred stock?
Explain how to estimate the beta of a stock. Explain the logic regarding how beta serves as a measure of a stock's risk. Please explain this a simply as possible so that I may understand.
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 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?
Suppose rRF = 5% rM = 10% & rA = 12%. a. Calculate Stock A's beta. b. If Stock A's beta were 2.0, what would be A's new required rate of 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
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%.
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?
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.
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
See attached file. Written Assignment: Problems: 8-7, 8-10, 8-12 8.7: Suppose you are the money manager of a $4million investment fund. The fund consists of four stocks with the following investment and betas: Stock investment
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
(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