Brandi Co. has an unlevered beta of 1.10. The firm currently has no debt, but is considering changing its capital structure to be 30% debt and 70% equity. If its corporate tax rate is 40%, what is Brandi's levered beta?
Stock A has a beta of 1.1 and Stock B's beta is 0.9. The market risk premium is 6% and the risk-free rate is 6.3%. Both stocks have a constant dividend growth rate of 7%. If the market is in equilibrium, which of the following statements is Correct? A. Stock A must have a higher stock price than Stock B B. Stock A must have a
In what form does a bank hold its required reserves? Assume the Fed has a 20 percent required reserve ratio. What amount of checkable deposits can be supported by $10 million in required reserves?
In what form does a bank hold its required reserves? Assume the Fed has a 20 percent required reserve ratio. What amount of checkable deposits can be supported by $10 million in required reserves? My answer to a first part In what form does a bank hold its required reserves? Banks are limited in the process of money creat
What is the beta of a three-stock portfolio including 25% of Stock A with a beta of .90, 40% Stock B with a beta of 1.05, and a 35% Stock C with a beta of 1.73?
Charles is the investment manager for a $10 million investment portfolio. The fund is invested in 5 stocks with the following investments and betas: Stock Investment Beta Stock 1 $3,000,000 1.1 Stock 2 $3,000,000 2.1 Stock 3 $1,000,000 0.2 Stock 4 $2,000,000 0.6 Stock 5 $1,000,000 1.9 If the market required rate of re
The return on the market and the expected return on Fuji stock are 16.3% and 12.8% during bull market. During bear market, the return on the market and the expected return on Fuji stock are 2.5% and 3.4%. Calculate the beta of Fuji.
XYZ company has a beta of -1. The risk-free (nominal) rate is 3% per year and that the required rate of return on the market is 10% per year. Find the required rate of return.
ABC Company are now considering the following new projects and to introduce the most attractive project to the shareholders of ABC Company. Project A Expected return / Beta coefficient / Standard deviation of returns are 18% / 1.3 / 44% Project B Expected return / Beta coefficient / Standard deviation of returns are 16% /
1) The alpha of the stock is 2) The beta of the stock is 3) What is the proportion of stock A in the portfolio, so that the expected return of the portfolio is 16.4%? 4) If you expect stock A with a beta of 1.2 to offer a rate of return of 20%, then you should
1) Stock A has an estimated rate of return of 12% and a beta of 1.2. The market expected rate of return is 12% and the risk-free rate is 2%. The alpha of the stock is: 1. 0% 2. -2% 3. 2% 4. 4% 2) Stock A has an expected rate of return of 14%. The market expected rate of return is 12% and the risk-free rate is 2%
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 1.30 12.00% Sto
Common Stock Value: Friedman Steel Company will pay a dividend of $1.50 per share in the next 12 months (D1). The required rate of return (Ke) is 10 percent and the constant growth rate is 5 percent. a. Compute Po b. Assume Ke, the required rate of return, goes up to 123 percent, what will be the new value of Po? c. Assume the growth rate (g) goes up to 7 percent; what will be the new value of Po? d. Assume D1 is $2, what will be the new value of Po?
24) Friedman Steel Company will pay a dividend of $1.50 per share in the next 12 months (D1). The required rate of return (Ke) is 10 percent and the constant growth rate is 5 percent. a. Compute Po For parts b,c, and d in this problem all variable remain the same except the one specifically changed. Each question is i
Kamath Manufacturing Company has a beta of 1.45, while Gehr 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 Kamath's and Gehr's required rates of return? (Hint: First, find the market risk premium, then find required returns on the
Your portfolio consists of $100,000 invested in a stock which has a beta = 0.8, $150,000 invested in a stock which has a beta = 1.2, and $50,000 invested in a stock which has a beta = 1.8. The risk-free rate is 7 percent. Last year this portfolio had a required rate of return of 13 percent. This year nothing has changed excep
You expect the risk-free rate (RFR) to be 5 percent and the market return to be 12.2 percent. You also have the following information about three stocks Current Expected Expected Stock Beta Price Price Dividend X 1 26 26 0.75 Y 2 41.5 44 1.50 Z 2 50.00 58 0.95 What are the expected (required) r
See attached file for full problem description. II. Tasks: Chapter 5: Risk and Return P5-26 Security Market Line (SML) Question Details P5-26 Security Market Line (SML). Assume that risk-free rate, Rf is currently 9% and that the market return, Km, is currently 13% A. Draw the security market line on a set of "nondi
17. The expected return on the market is 13% and the risk-free rate is 5%. Your portfolio has a beta of 1.3. What is the expected return on your portfolio? 18. What is the beta of the following portfolio? 40% Stock A Beta = 1.2 30% Stock B Beta = 1 30% Stock C Beta = 0.9 19. The more __________
Practical Desks Inc. has a beta coefficient of 0.7 and a required rate of return of 15 percent. The market risk premium is currently 5 percent. If the inflation premium increases by 2 percentage points, and Practical Desks acquires new assets which increase its beta by 50 percent, what will be Practical Desks' new required rate
The market portfolio is assumed to be composed of two securities, investment X and investment Y. Determine based on the information given the average return, standard deviation and coefficient variation. Which is the better investment? Year Return X Return Y 1997 16.5% 17.5% 1998
If the market required rate of return is 14% and the risk-free rate is 6%, what is the fund's required rate of return?
Suppose you are the money manager of a 4 million investment fund. The fund consists of 4 stocks with the following investments and betas. Stock A 400,000 beta 1.50 Stock B 60,000 beta (0.50) Stock C 1,000,000 beta 1.25 Stock D 2,000,000 beta 0.75 If the market required rate of return is 14% and t
If you require a 14 percent return on this stock, what will you pay for a share today? See attached file for full problem description.
If the required return of Warf stock is 13 percent, what will a share of stock sell for today. See attached file for full problem description.
You are holding a stock which is currently in equilibrium. The required rate of return on the stock is 15 percent when the required return on an average stock is 10 percent. What will be the percentage change in the required return on the stock if the required return on an average stock increases by 30 percent while the risk-fre
1. The Carter Company's bonds mature in 10 years have a par value of $1,000 and an annual coupon payment of $80. The market interest rate for the bonds is 9%. What is the price of these bonds? a. $935.82 b. $941.51 c. $958.15 d. $964.41 e. $979.53 2. Bauer Inc's bonds currently sell for $1,275 and have a par value of
Cost Creators has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred stock sells for $60 a year. What is the preferred stock's required rate of return?
Please help with the following problem. I am not sure how to approach this one. I am trying to solve the problem in Excel. Please help with the formula(s) for this problem and how to solve in Excel. Thanks! Calculate the required rate of return for Mars Inc.'s stock. The Mars's beta is 1.2, the rate on a T-bill
A money manager is holding the following portfolio: Stock Amount Invested Beta 1 $300,000 0.6 2 300,000 1.0 3 500,000 1.4 4 500,000 1.8 The risk-free rate is 6 percent and the portfolio's required rate of return is 12.5 percent. The manager would like to sell all of her holdings of Stock 1 and use the p
Calculate the required rate of return for Mars Inc.'s stock. The Mars's beta is 1.2, the rate on a T-bill is 4 percent, the rate on a long-term T-bond is 6 percent, the expected return on the market is 11.5 percent, the market has averaged a 14 percent annual return over the last six years, and Mars has averaged a 14.4 return o
Suppose the following: Risk Free Rate of Return = 9% Required Rate of Return on a Market Portfolio = 14% Beta = 1.3 Suppose the risk free rate of return (1) increases to 10 percent or (2) decreases to 8 percent. The slope of the SML remains constant. How would this affect the required rate of return on a market por
#1. An asset has a beta of 1.6. The risk-free rate is 6 percent, and the market risk premium is 8 percent. Using the SML, estimate the required rate of return on this asset. #2. Suppose Firm A's levered beta is 0.75, its D/E ratio is 0.62, and its tax rate is 34 percent. Calculate its unlevered beta.
In 3 or 4 sentences: How do you determine what your rate of return should be when you invest in a property?