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The Capital Asset Pricing Model (CAPM)

Stocks, Portfolios, and Expected Return

I have 2 finance problems which I need help with. I need step-by-step explanations please. Thanks. 1. A stock has a beta of 1.24. The expected return on the market is 11.5% and the risk free rate is 3.4%. What is the expected rate of return on the stock? 2. You own a portfolio that has $3,400 invested in Stock A and $4

MBA Question Finance: Defining Terms

Question: Define the following terms and explain how they affect one another. More specifically, for what purposes are they used and how do they relate to one another: efficient portfolio, individual investor, short selling, Sharpe ratio, beta and CAPM. Provide an example with each definition.

Beta Problem: Accepting or Rejecting a Project

XYZ has an asset beta of 1 and a cost of capital of 15%. A new project is being explored with a beta of .2 and an IRR of 10%. Inserting the projects beta into the CAPM reveals a return of 5% based on project risk. Should the firm accept or reject the project? Explain.

Capital Asset Pricing Model and Beta

The capital asset pricing model (CAPM) relates the risk return trade-off of individual assets to market returns so that a security has a risk-free rate of return and a premium for risk. -Explain in detail the components of CAPM. -Please also include the formula and an explanation of beta.

Dividend Growth, CAPM or APT

Explain the challenge of estimating or coming with a good "feel" for the "cost of equity capital" or the rate of return that you feel your company investors require as the minimum rate of return that they expect of my company (Lowes Companies, Inc.) to earn on their investment in the shares of the company. Which of the thre

The Cost of Equity Capital and the CAPM

Please use the following (hypothetical) information to calculate the "cost of equity" by using the CAPM model: RE = RF + Beta(RM - RF) Nike = 20% + 0.80(7.50% - 20%) = Sony = 20% + 1.40(8.50% - 20%) = McDonald's = 20% + 0.30(9.50% - 20%) =

CAPM Cost of Equity for Nike, Sony, and McDonald Corporation

Please check CAPM calculations for Nike, Sony and McDonalds. CAPM would calculate Nike's current cost of equity at 2.859% RE = RF + Beta(RM - RF) RE = 20% + 0.91(7.50% - 20%) RE = 2.859% This calculation is based on a variable market rate of return and a risk free rate. Using a variable market rate of return may be appr

WACC: Wild Widgets, Inc.

If Wild Widgets, Inc. were an all-equity company it would have a beta of 1.55. The company has a target debt-equity ratio of 0.4. The expected return on the market portfolio is 12.9 percent, and Treasury bills currently yield 5.9 percent. The company has one bond issue outstanding that matures in 23 years and has an 6.8 percent

Investing in stocks of 3 companies: Ford, Johnson & Johnson, and Target and calculating the required rate of return for each company. Consider the risk and reward trade-off of each.

I have chosen the following 3 companies to invest stock in Ford Motors (Automotive) Johnson & Johnson (Drug company) Target (Retail Chain) I need help finding the current yield of the 10-year treasury bond and calculating the required rate of return for each of them. I need to be able to show my work and explain how the

Required return: CAPM

Based on the following information, calculate the required return based on the CAPM: Risk Free Rate = 3% Market Return = 10.5% Beta = 1.2

Risk and Return and the Coefficient of Variation

1. Risk & Return and the CAPM. Based on the following information, calculate the required return based on the CAPM: Risk Free Rate = 3.5% Market Return =10% Beta = 1.08 2. Risk and Return, Coefficient of Variation Based on the following information, calculate the coefficient of variation and select the best investm

Risk and Cost of Capital

Nero Violins has the following capital structure: Security Beta Total Market Value ($millions) Debt 0 $100 Preferred stock .20 40 Common Stock

Expected returns, beta

1) You are considering three stocks with the following expected dividend yields and capital gains: DIVIDEND YIELD CAPITAL GAIN A 14% 0% B 8% 6% C 0 14% A) What is the expected return on each stock? B) How many transactions costs and capital gains taxes affect your choices among the three securities? 3. You are given the

Journal entries & calculations for asset sales are explained.

Can someone please explain in detail (using excel) how I would book the following example: 1. An asset that was purchased in Feb. 2008 for $25,000 has been depreciating via straight line method for the past 4 years. 2. Then, we sold the asset in June 2012 for $1,800. How do I book the transactions and what accounts do I

Capital Valuation - Walmart

Justify the current market price of the organization's (Walmart) debt, if any, and equity using various capital valuation models. - Show calculations that support your findings, including those involving rate of return. - Defend which valuation model best supports your findings.

Capital Asset Pricing Model (CAPM) and Beta

In the Capital Asset Pricing Model (CAPM) why do we use beta ß, rather than standard deviation of returns, as our measure of risk? Why is it that the formula for beta fits in with the meaning of beta as non-diversitifiable risk?

Risk, return, and the capital asset pricing model

Andrea Corbridge is considering forming a portfolio consisting of Kalama Corp. and Adelphia Technologies. The corporations have a correlation of -0.1789, and their expected returns and standard deviations are as follows: Kalama Corp. Adelphia Technologies Expected returns (%) 14.86 23.11 Standard Deviation (%) 23.36 31.89

Financial Management Appropriate Returns

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

Stock valuation: universal lever, Inc. just paid dividend

1) Stock valuation: universal lever, Inc. just paid dividend of $2.75 on its stock. The growth rate in dividend is expected to be a constant 6 percent per year, indefinitely. Investors require a 16 percent return on the stock for the first three years, a 14 percent return for the next three years, and then an 11 percent return t

Rate of Return and Capital Pricing

1. (Expected rate of return and risk) Summerville Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return of each? COMMON STOCK A COMMON STOCK B PROBABILITY RETURN PROBABILY RETURN .3

Expected Return, Quick Ratio, and Discounted Payback

Question 1: Flying Penguins Corp. has total current assets of $11,845,175, current liabilities of $5,311,020, and an inventory of $7,000,000. What is the quick ratio? Question 2: NBA sensation Jeremy Lin is negotiating a new 5-year contract with the New York Knicks. The Knicks offer him the following "Lincredible" com

Cost of equity

Using the risk free rate of 2.86% and a return on the market of 14%, determine the cost of equity (using the Capital Asset Pricing Model) for the firm on the New York Stock Exchange whose name is the closest to your last name (My last name is Carr). This means that you have to find your firm's beta. (Try Yahoo Finance.)

Managers should base pricing decisions on both cost and market factors. In addition, they must also consider legal issues. Describe the influence that the law has on pricing decisions.

1.Managers should base pricing decisions on both cost and market factors. In addition, they must also consider legal issues. Describe the influence that the law has on pricing decisions. 2."It is impossible to use Discounted Cash Flow methods for evaluating investments in research and development. There are no cost savings to m

Irene has made Sara an offer on the purchase of a capital asset. Irene will pay (1) $200,000 cash or (2) $50,000 cash and a 6% installment note for $150,000 guaranteed by City Bank of New York. If Sara sells for $200,000 cash, she will invest the after tax proceeds in certificates of deposit yielding 6% interest, Sara's cost of the asset is $25,000. Why would Sara prefer the installment sale?

Irene has made Sara an offer on the purchase of a capital asset. Irene will pay (1) $200,000 cash or (2) $50,000 cash and a 6% installment note for $150,000 guaranteed by City Bank of New York. If Sara sells for $200,000 cash, she will invest the after tax proceeds in certificates of deposit yielding 6% interest, Sara's cost of

Internal Gaming Technology: Evaluation of Liquidity

Based on financial statements of Internal Gaming Technology and their background answer the questions below: b. Detailed evaluation of: (1) Short-term liquidity (current debt-paying ability). (2) Cash forecasting and pro forma analysis. (3) Capital structure and solvency. (4) Return on invested capital. Your analysis