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# The Capital Asset Pricing Model (CAPM)

### Cost of equity capital : explained

The following financial information is available on Fargo Fabrics, Inc.: Current per-share market price = \$20.25 Current per-share dividend = \$1.12 Current per-share earnings = \$2.48 Beta = 0.90 Expected market price premium = 6.4% Risk-free rate (20-year Treasury bonds) = 5.2% Past 10 years earning per share:

### Intrinsic value of your stock

I am working on a project and trying to determine the intrinsic value of UPS Stock. After reviewing info, I came up with the following calculation for the intrinsic value of UPS stock; however, the actual stock price today is 70.25. I am not sure why my calculation does not come close to this figure. Also, is there another met

### Unique versus Market Risk.

Figure in the attachment shows plots of monthly rates of return on three stocks versus the stock market index. The beta and standard deviation of each stock is given beside its plot. a. Which stock is safest for a diversified investor? b. Which stock is safest for an undiversified investor who puts all her funds in one of

### Investment Fundamentals

Please see the attached file. 1. John Smith has been reviewing the stock of ABC. John has estimated that the stock will have the following possible returns and probabilities: Return Probability -0.15 0.10 -0.05 0.20 0.05 0.35 0.15 0.25 0.25 0.10 a. Compute the expected return on ABC stock. b. Compute the

### Article Analysis

Using the attached article prepare a 500 word analysis about the article. Include the major point(s) made, application(s) to Financial Management, the any of the concepts reinforced from the class objectives, and a summary. Here are the class objectives: TIME VALUE OF MONEY, VALUATION, AND RATE OF RETURN ? Calculate

### Financial Article Analysis - Target Finds Buyer for Half its Card Receivables

Article Analysis Using the articles attached, create a 500-750 word analysis that includes the major point(s) made, application(s) to Financial Management, the concepts reinforced, and a summary. The text for the course is Foundations of Financial Management (11th ed.) by Block, Hirt. Attached are the objectives we have alr

### Stock Price Determination- Capital Asset Pricing Model. a. Determine the required rate of return using the CAPM. b. Using the constant growth dividend valuation model along with the finding in part A. determine the intrinsic value of Augo's stock.

Augo Enterprises has a beta of 1.20 while the prevailing risk-free rate of interest is 10% and the required rate of return on the market portfolio is 14%. The company plans to pay a dividend of 2.60 per share next year and anticipates that future dividends will increase at an annual rate consistent with that experienced over th

### General Electric Corporation's Financials

Recommend ANY change to the General Electric Corporation's financials (enclosed) that will give GE a better credit rating with lenders and/or agency bond issuers. Describe what this will do.

### Dividend Growth Model or the Capital Asset Pricing Model

Do you feel that the Dividend Growth Model or the Capital Asset pricing Model is more accurate in determine the cost of a firm's common equity? Defend your answer. Mini Case: After collaborating with people form your finance department, you have completed the analysis of purchasing five new delivery trucks. Using your firm's

### GoodBuy stock has a beta of 1.75.

Question 21 GoodBuy stock has a beta of 1.75. The expected return on GoodBuy is 20%, while the expected return on the market portfolio is only 13%. The risk-free rate is 3%. Because GoodBuy lies __________ the SML, it is considered __________. a. below; overpriced b. below; underpriced c. above;

### Different Financial Structures

Different companies choose different financial structures (debt vs. equity). Is there a preferred model? What are the positives/negatives of a higher % of each? Any answer given will be used to understand the question and will be reworded.

### Suppose the expected returns and standard deviations of stocks A and B are

Please note the attachment and complete problems in Excel. Thank you! Suppose the expected returns and standard deviations of stocks A and B are E(RA) = 0.17, E(RB) = 0.27, StdDevA = 0.12, and StdDevB = 0.21, respectively. a. Calculate the expected return and standard deviatio

### Computing Beta and Risk Premium

I. Compute the expected return and the volatility of return of a portfolio that has a portfolio share of 0.9 in the S&P 500 and 0.1 in an emerging market index. The S&P 500 has a volatility of return of 15 percent and an expected return of 12 percent. The emerging market has a return volatility of 30 percent and an expected retu

### Beta using the DDM and CAPM

Cache creek manufacturing company is expected to pay a dividend of \$4.20 in the upcoming year. Dividend are expected to grow at the rtate of 8% per year. The risk free rate of return is 4% and the expected return on the market portfolio is 14%. Investors use the CAPM to compute the market capitalization rate on the stock, and

### Company: Apple Computer

Comprehensive Financial Analysis Part I Paper Select a publicly traded organization. You may also visit the organization's website and review its annual and 10-K reports. Based on your findings, prepare a paper in which you evaluate the performance of your selected organization using financial ratios. Be sure to address the f

### Manufacturing Operations for India or Brazil

The purpose of this paper is to provide a detailed report for Levi Strauss & Company so that the firm can make an informed decision regarding expansion of its overseas manufacturing operations into either India or Brazil. Select the optimal financing/investment strategy for your selected scenario I need assistance with inform

### Investment Multiple Choice Questions: Preferred stock, tax equivalent yield of a municipal bond, security market line (SML), efficient market hypothesis, market anomaly, ticker symbol, leading economic indicator, Dow Jones Industrial Average, EAFE index, call option, geometric average of the quarterly returns, mutual fund

1.Preferred stock: a. Is actually a form of equity b. Pays dividends not fully taxable to U.S. corporations c. Is normally considered a fixed-income security d. All of the above 2. Find the tax equivalent yield of a municipal bond paying 4% for someone in the 30% tax bracket (assume this investor resides in the same state

### 19 Questions on Derivatives: beta of a hedge fund, put option, CAPM, Capital Asset Pricing Model, investors, risk averse, portfolios, mean, variance, highest return portfolio, efficient frontier, abnormal returns, equity mutual funds, riskless return, options position, time to maturity, interest rates, convexity of a puttable bond, futures contracts, gold, initial margin, margin calls, volatility, Palm, 3COM, financial markets, beta calculation, value of a put option, exercise price, maturity, arbitrage opportunity, riskless return, call, 6-month forward rate, Canadian dollars, US dollars, implied volatility, historical volatility, SPX, floating to fixed swap, LIBOR, swap counterparty

For each of the following 8 statements determine if it is true, false or uncertain. You must justify your answer with a one-sentence explanation. 1. The beta of a hedge fund is usually close to one. 2. Suppose you hold a share of stock and a put option on that share. If the stock price is below the exercise price when the

### What is the fund's required rate of return with following investments and betas?

Problem: Suppose you are the money manager of a \$4 million investment fund. The fund consists of four stocks with the following betas: Stock Investment Beta A \$0.4 million 1.5 B \$0.6 million (0.50) C \$1.0 million 1.25 D \$2.0 million 0.75 If the market required rate of return is 14 percent and the risk-

### 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 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?

### 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

### 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

### 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?

### 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

### 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

### 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