Purchase Solution

# Financial Management Appropriate Returns

Not what you're looking for?

1. (Capital asset pricing model) MFI Inc. has a beta of .86. If the expected market return is 11.5 percent and the risk-free is 7.5 percent, which is the appropriate return of MFI (using the CAPM)?

2. (Computing bolding-period returns)
a. From the price data here, compute the holding-period returns for Jazman and Solomon for periods 2 through 4.

PERIOD JAZMAN SOLOMON
1 \$9 \$27
2 11 28
3 10 32
4 13 29

b. How would you interpret the meaning of a holding-period return?

3. (Bondholder' expected rate of return) The market price is \$900 for a 10-year bond (\$1,000 par value) that pays percent interest (4 percent semiannually). What is the bond's expected rate of return?

4. You own a bond that has a par value of \$1,000 and matures in 5 years. It pays a 9 percent annual coupon rate. The bond currently sells for \$1,200. What is the bond's expected rate of return?

5. (Bond valuation) ExxonMobil 20-year bonds pay 9 percent interest annually on a \$1,000 par value. If bonds sell at \$945, what is the bond's expected rate of return?

6. (Bondholders' expected rate of return) Zenith Co.'s bonds mature in 12 years and pay 7 percent interest annually. If you purchase the bonds for \$1,150 what is your expected rate of return?

##### Solution Summary

The expert examines financial management appropriate returns.

##### Solution Preview

Given that,
Beta for MFI, β=0.86
Expected market return, Rm=11.5%
Risk Free Rate, Rf=7.5%

Hence, using CAPM:
Appropriate return of MFI=7.5%+(11.5%-7.5%)*0.86=10.94%

We have,
Given that,
PERIOD JAZMAN SOLOMON
1 \$9 \$27
2 11 28
3 10 32
4 13 29

Hence,
Jazman Holding Period Return=(\$13-\$9)/\$9=44.44%
Solomon Holding Period ...

Solution provided by:
###### Education
• MBA, Indian Institute of Finance
• Bsc, Madras University
###### Recent Feedback
• "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
• "thank you!"
• "Thank you again Jayant. You are super fast. "
• "Thank you Jayant. You are appreciated. "
• "Again, thank you Jayant. You are wonderful. "

##### Free BrainMass Quizzes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

##### Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

##### Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

##### Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

##### Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.