CAPM and Expected Return. The following table shows betas for several companies. Calculate each stock's expected rate of return using the CAPM. Assume the risk-free rate of interest is 5 percent. Use a 9 percent risk premium for the market portfolio. Company / Beta: Cisco 2.03 Citigroup 1.36 Merck .40 Walt Disney .84
1) If one of your stocks has a relatively high beta of 1.4 and is currently doing exceedingly well, why would you want a stock in your portfolio with a relatively low beta of 0.7 that has been recently under-performing? By diversifying your investments according to betas, have you entirely removed the potential risk of losses du
How do the efficient markets hypothesis, the capital asset pricing model, and the security market line maximize shareholder wealth?
1. Use the Capital Asset Pricing Model (CAPM) to find the expected return on Kellogg common equity. Use monthly price data for the last ten years (ending June 2004). The following steps will guide you through this problem. A. Using the FRED database, (http://research.stlouisfed.org/fred2/) calculate the average return on 10-y
Here is the condensed balance sheet for Skye Computer Company (in thousands of dollars: Current Assets $2000 Net Fixed Assets $3,000 Total Assets $5,000 Current Liabilities $900 Long-Term Debt $1,200 Preferred Stock $250 Common Stock $1,300 Retained Earnings $1,350 Total Common Equity $
Ceejay Corporation's stock is currently selling at an equilibrium price of $30 per share. The firm has been experiencing a 6 percent annual growth rate. Last year's earnings per share, Eo, were $4.00 and the dividend payout ratio is 40%. The risk-free rate is 8%, and the market risk premium is 5%. If the market risk (beta) incre
ABC Fitness Company 000's INCOME STATEMENT Dec. 99 Sales 1968.016 Cost of Goods Sold 1466.733 Gross Profit 501.283 Selling and Ad. Expenses 361.402 Depreciation 35.7 Operating Income (EBIT) 104.181 Interest Expense 34.482 Other Expense 14.124 EBT 83.823 Taxes 24.701 Net Income 59.122 BALANCE SHEET 000's Assets C
1. The shares of the following three companies have been included in the portfolio: Required Return in Accordance with Systematic Risk Standard Deviation of Returns Beta Bank Ltd. ? 20 1.2 Trade Ltd. ? 30 0.8 ALD Ltd. ? 25 ? Market Portfolio 12 16 ? Risk free 5 0 - a) Calculate the Required Return of the Bank Ltd. an
Using 2-stage DDM and CAPM to value stocks: Beta of company: 1.15 Market price: $30 Intrinsic value: ? Risk-free rate 4.50% Expected market return: 14.5% EPS and dividend growth rates for first 3 years: 12% per year EPS and dividend growth rates thereafter: 9% per year Estimate the intrinsic value oif the compa
Questions: 1.- How should Jonathan describe the rationale of the dividend discount model (DDM) and demonstrate its use in calculating the justifiable price of common stock? 2.- Being a researcher, Dwayne asked Jonathan a key question, "How did you estimate the growth rates used in applying the model?" Using the data givi
1) In what significant does the APT differ from CAPM ? 2) Why would an investor wish to form an arbitrage portfolio ? 3) What three conditions define an arbitrage portfolio ? 4. Assuming a one-factor model, consider a portfolio composed of three securities with the following factor sensitivities: Security ---
On the basis of the risk and return relationships of the CAPM, supply values of the seven missing numbers in the following table: Security Expected return Beta Standard Deviation Non-market Risk A ____% 0.8 ____% 81 B 19.0
If the required risk-free rate of return is estimated to be 4% and the expected rate of return on the market is 9%, what is the required rate of return on any risky asset held in a diversified portfolio when the asset's beta coefficient is 0.85?
Describe the implementation of the HAMADA model.
1 In a portfolio of three different stocks, which of the following could not be true? a. The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isola-tion. b. The riskiness of the portfolio is greater than the riskiness of one or two of the stocks. c. The beta of the portfolio
A stock has an expected return of 20% and a beta of 1.5, and the expected return on the market is 15%. What must the risk-free rate be?
A stock has an expected return of 10%, its beta is 0.9, and the risk-free rate is 5%. What must the expected return on the market be?
What would you expect the effect to be of the following changes on the market price of a company's shares, all other things being the same? Provide an explanation of your expectation. a. Investors demand a higher required rate of return on shares in general b. The covariance between the company's rate of return and that for