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# The Capital Asset Pricing Model (CAPM)

### CAPM (Capital Asset Pricing Model)

Propose we only have the information of beta and expected return, if we know the value of the risk-free-rate, can we determine which one of the following stocks is priced higher. Stock A : Beta 1.08, Expected Return 12.8% Stock B : Beta 0.66, Expected Return 9.6%

### Cost of Capital: Cost of components of capital

INPUTS USED IN THE MODEL P0 \$50.00 Net Ppf \$30.00 Dpf \$3.30 D0 \$2.10 g 7% B-T kd 10% Skye's beta 0.83 Market risk premium, MRP 6.0% Risk free rate, kRF 6.5% Target capital structure from debt 45% Target capital structure from preferred stock 5% Target capital structure from common stock 50% Tax rat

### Cost of equity using CAPM

What is the cost of equity of a firm that has a beta of 1.98 and a dividend yield of 6.58%? Assume the risk free rate is 4.43% and the return last year of the S&P500 was 12.29%. a. 3.04% b. 3.23% c. 14.69% d. 17.22%

### What will be the cost of equity if capital structure changed?

Cost of Equity if Capital Structure changed to 50/50? Current capital structure: 20 percent debt and 80 percent equity, based on market values. (Its D/S ratio is 0.25.) The risk-free rate is 6 percent and the market risk premium, rM - rRF, is 5 percent. Currently the company's cost of equity, which is based on the CAPM, is

### What is the expected return on stock B?

The risk-free rate is 8 percent. The beta oF stock B is 1.5 ,and the expected returns on the market portfolio is 15 percent. Assume the capital - asset pricing model holds. What is the expected return on stock B?

### Expected return on Stock

The risk-free rate is 8%. The beta of stock B is 1.5 and the expected return on the market portfolio is 15%. Assume the capital-asset pricing model holds. What is the expected return on stock B?

### National Austrlia Bank (NAB) is a prominent company listed

National Australia Bank (NAB) is a prominent company listed on the Australian Stock Exchange (www.asx.com). Using the one-factor CAPM, work out the expected rate of return for the company for the seven-month period beginning Monday 27 may 2007 through to 31 Dec 2007. Explain how you arrived at the values for the variables in

### Risk and interest rates

Please help me find an estimate of the risk-free rate of interest, krf. To obtain this value, Please use the Bloomberg.com: Market Data site.[http://www.bloomberg.com/markets/index.html] and use the "U.S. 10-year Treasury" bond rate as the risk-free rate. In addition, you also need a value for the market risk premium. Use an as

### According to CAPM: What is the expected return on the market portfolio?

Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1.0 is 12%. According to the capital asset pricing model: a. What is the expected return on the market portfolio? b. What would be the ex

### Portfolio Theory and CAPM

Portfolio Theory and CAPM. See attached file for full problem description.

### Choosing between two mutually exclusive projects

Please help with the following problem. Provide your solutions in Excel. Mutual exclusive investment Here are the cash flow forecast for two mutually exclusive projects: Cash Flows, Dollars Year Project A Project B 0 -\$100 -\$100 1 30 49 2 50

### Value of stock

A company paid a dividend of \$1.20 for 2006 and has a beta of 1.2. It is expected to increase its dividend at an 8% annual rate for the foreseeable future. The expected return for the market (portfolio) is 14% and the risk-free rate is 5%. a) Using the Capital Asset Pricing Model, what is the stock's value? b) If the com

### Risk and Capital

By walking you through a set of financial data for IBM, this assignment will help you better understand how theoretical stock prices are calculated; and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (Capital Asset Pricing Model) and the Constant Growth Model (CGM) to arrive at

### CAPM Calculation Question

The 30 year treasury bond market rate is 5%, the stock market premium is 6%, and a company's beta is 1.5. Use the CAPM to calculate the required return for that company's stock; then explain the logic of this calculation.

### Managerial Finance CAPM

In the CAPM, what does beta measure? How is it computed? How would a change in inflation rate impact the security market line and a stock's beat? What impact would changing investor expectations have on the security market line and a stock's beta? What difficulties might be encountered when using the CAPM?

### Risk Free Rate, Beta, CAPM, CGM for IBM

By walking you through a set of financial data for IBM, this assignment will help you better understand how theoretical stock prices are calculated; and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (Capital Asset Pricing Model) and the Constant Growth Model (CGM) to arrive at

### Stock price

1) Equilibrium stock price: The risk free rate return rRF, is 6 percent: the required rate of return on the market is rM, is 10 percent; and Upron Company's stock has a beta coefficient of 1.5. a. IF the dividend expected during the coming year, D1, is \$2.25, and if g=a constant 5 percent and at what price should Upton's stoc

### Cost of capital and how it is calculated

Please provide an explanation of a company's cost of capital and how it is calculated. What is marginal cost of capital and how does it differ from weighted average cost of capital? How do market rates and the company's perceived market risk impact its cost of capital? Provide reference sites that I can use for research.

### Risk assessment of Strident Marks.

The CFO has requested from you, a risk assessment of Strident Marks. Think about the risks inherent in Strident Marks and how to quantify these risks. Download the data provided FIN310 ( Attached and calculate the measure of risk for this company (defined as Beta in the Capital Asset Pricing Model - CAPM) and explain why this ca

### Use the weighted-average-cost-of-capital approach to determine whether or not Neon should purchase the equipment.

Neon Corporation's stock returns have a covariance with the market portfolio of 0.031. The standard deviation of the returns on the market portfolio is 0.16, and the expected market risk premium is 8.5 percent. Neon's bonds yield 11 percent per annum. The market value of the bonds is \$24 million. Neon has 4 million shares of com

### How to calculate - Rate of Return, CAPM

1. 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 percent, and the risk-free rate of return is 7 percent. By how much does the required return on the riskier stock exceed the required return on the less risky stock? 2. CAPM and required ret

### Computation of Value of IBM

Examine the structure and activities in your reference organization and identify two projects or events that required an investment. One should be current and the other non-current. Reference Company: IBM Corporation For each project or event, identify the preferable source of funding. You may not have access to the ac

### CAPM Steps in Calculating Asset Beta

What are the steps in calculating the Asset beta in the CAPM for purposes of calculating the cost of capital for a project?

### The earning, dividends, and stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto common stock sells for \$23 per share, its last dividend was \$2.00, and the company will be a dividend of \$2.14 a the end of the current year.

The earning, dividends, and stock price of Carpetto Technologies Inc. are expected to grow at 7 percent per year in the future. Carpetto common stock sells for \$23 per share, its last dividend was \$2.00, and the company will be a dividend of \$2.14 a the end of the current year. See attached file for full problem description.

### Cash Flow Valuation Models

Estimate the cost of equity, WACC, and unlevered cost of equity. Using Target as the company you have been studying thus far. Find the beta for your company use: http://finance.yahoo.com/q/ks?s=AIG Estimate your company's cost of equity. Estimate your company's weighted-average cost of capital. Estimate your compan

### Corporate Finance

I used IBM as my discussion company to explain beta so far I have come up with this... Beta is a measure of stock price fluctuation, as compared to an "average" company. If a particular stock has a high beta, that means the price fluctuates. Raising capital equity will be based on seeking out those ventures who thrive on roll

### Cost of Equity and Capital for Carpetto Technologies

The earnings, dividends, and stock price of Carpetto Technologies Inc are expected to grow at 7 percent per year in the future. Carpetto's common stock sells for \$ 23 per share, its last dividend was \$ 2, and the company will pay a dividend of \$ 2.14 at the end of the current year. a. Using the discounted cash flow approach,

### Stock Valuation of Hewlett-Packard stock using of CAPM

A. Using the SML of the CAPM, calculate the required rate of return that would be approprite to evaluate the stock of Hewlett-Packard. Base the expected market return on the average S&P 500 rate of return over the last four years. Assume a beta of 0.95. (Use finance.yahoo.com for data, and put data on excel spreadsheet) Usin

### Difference in Required Returns

CAPM and Portfolio Return - HR Industries (HRI) has a beta of 1.8. While LR Industries' (LRI) beta is 0.6. The risk free rate is 6 percent, and the required rate of return on an average stock is 13 percent. Now the expected rate of inflation built into rRF falls by 1.5 percentage points, the real risk-free rate remains constant,

### Capital-asset-pricing model

Consider the following two stocks: Beta Expected Return Merck Pharmaceutical 1.4 25% Pizer Drug Corp 0.7 14% Assume the capital-asset-pricing model holds. Based on the CAPM, what is the risk-free rate? What is the expected return on the market portfolio?