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The Capital Asset Pricing Model (CAPM)

Finding Beta for a Stock

The Treasury bill rate is 4 percent, and the expected return on the market portfolio is 12 percent. Using the capital asset pricing model: If the market expects a return of 11.2 percent from stock X, what is its beta?

Determining NPV of a Treasury Bill

The Treasury bill rate is 4 percent, and the expected return on the market portfolio is 12 percent. Using the capital asset pricing model: If an investment with a beta of .8 offers an expected return of 9.8 percent, does it have a positive NPV?

Market Risk Premium for Treasury Bill

The Treasury bill rate is 4 percent, and the expected return on the market portfolio is 12 percent. Using the capital asset pricing model: - What is the risk premium on the market?

CAPM and Beta Coefficients

A money manager is managing the account of a large investor. The investor holds the following stocks: Stock Amt Invested Estimated Beta A 2,000,000 .8 B 5,000,000 1.1 C 3,000,000 1.4 D 5,000,000 ??? The protfolio's required rate of return in 17%. The risk-free rate is 7% percent and

Chipotle's Pro-Forma Balance Statement

Attached is a financial analysis of Chipotle Mexican Grill, Inc. I was wondering if someone could please create a corresponding pro-forma balance statement. An example of what a corresponding pro-forma balance statement might look like is also attached, designated only by the Excel sheet with two dashes (--) next to the title

Assessment of Abel Athletics' current cost of capital

After considering expanding your line of equipment and apparel for high school athletic teams to include soccer teams and gathering information on the increase in sales for your division and the investment needed in new manufacturing equipment, without having to hire additional manufacturing personnel, you arrange a meeting with

Capital Asset Pricing Model: Compute Kj for Three Betas

Assume that Rf = 5 and Km=10.5 percent. Compute Kj for the following betas, using an increase in interest rates changes Rf to 6.0 percent, and the market risk premium (Km-Rf) changes to 7.0 percent. Compute Kj for the three betas of 0.6, 1.3 and 1.9

Multiple Choice Questions on Derivatives, mergers, multinational finance: value of an option, factors affecting the value of call options, put options, writing call options, interest rate risk, reinvestment rate risk, swap, Treasury bond futures, appropriate discount rate for valuing acquisition, purchasing power parity, pre-merger WACC

1. The value of an option depends on the stock's price, the risk-free rate, and the a. Exercise price. b. Variability of the stock price. c. Option's time to maturity. d. All of the above. e. None of the above. 2. An option which gives the holder the right to sell a stock at a specified price at some time in the futur

Finance: Calculate net profits of options and securities using CAPM

Calculating net profits of options and securities using CAPM. 1. Calculate the net profits of each option under the following assumption. Also indicate if the option is ITM, ATM, or QTM. Strike price of options = $100 Premium of options =$10 a.) Long position of Call option if the stock price is $125 and if the stock

Security Market Line and Capital Asset Pricing Model

See the attached file. Question 1. How are the SML and the CAPM related (Draw the appropriate graphs and explain)? Question 2. A stock's current dividends are $1.50 and its expected to grow at 10 percent annually. Suppose its required rate of return equals 15 percent. The stock's recent market price is $120. What is its i

Beta and Expected return

I have a two-part question: I would like help figuring the BETA of my stock that has an expected return of 14%, a risk-free rate of 4% and a market risk premium of 6%. In contrast, If my stock already has an expected return of 11%, a BETA of .85, and a risk-free rate of 5.5%, please help me calculate what the expected ret

Calculating Beta and Cost of Equity Capital

Calculate the beta and the cost of equity capital. The following historical data for a proxy firm is similar to the firm evaluated in the final project assignment. Year Market Rate of Return Firm Rate of Return 20X0 25% 15% 20X1 10% 6% 2

Present/future values, valuation models, amortization schedules and more!

Can you help get me started on these questions? I am having a hard time grasping the concept. Thanks! 1. How would you use the present and future value techniques in preparing a financial plan for retirement? How would required rates of return affect your decision? Explain your reasoning. 2. What is a loan amortizatio

20 Investment Multiple Choice Questions: expected return, portfolio weights, systematic risk, unsystematic risk, standard deviation of return, portfolio, diversification, reward-to-risk ratio, security market line, probability range of returns, portfolio beta, expected rate of return on the market

21. The expected return on a security given two unequal states of the economy: e. will equal the overall expected return on the market. c. will always be higher than that based on a single economic state. b. is computed as the geometric average of the returns for each state. d. is affected by the proba

Questions from Case study risk and return: 1. Imagine you are Bill. Compute the expected rate of return and standard deviation of individual stocks and explain to Mary the relationship between risk and return. 2. Mary has no idea what beta means and how it is related to the required return of the stocks. Explain how you would help her understand these concepts.

Questions: 1. Imagine you are Bill. Compute the expected rate of return and standard deviation of individual stocks and explain to Mary the relationship between risk and return. 2. Mary has no idea what beta means and how it is related to the required return of the stocks. Explain how you would help her understand these concep

In the CAPM model, compare standard deviation with expected return Is the following statement True, False, or Ambiguous? Provide a short justification for your answer (you are evaluated on the justification). "In the CAPM model, since investors are compensated for holding risk, two securities with the same standard deviation should have the same expected return."

Is the following statement True, False, or Ambiguous? Provide a short justification for your answer (you are evaluated on the justification). "In the CAPM model, since investors are compensated for holding risk, two securities with the same standard deviation should have the same expected return."

Asset values versus market values: manager complained about amount of depreciation

1. A manager complained about the amount of depreciation charged on the plant for which she was responsible: "The market value of my plant just continues to increase, yet I am hit with large depreciation charges on my income statement and the value of my plant and equipment on the balance sheet goes down each year. This doesn't

Estimating cost of capital (WACC, IRR)

1. What is an appropriate required rate of return against which to evaluate the prospective IRRs from the Boeing 7E7? a. Please use the capital asset pricing model to estimate the cost of equity. b. Which equity market risk premium (EMRP) did you use? Why? c. What Beta did you use and how did you derive it? d. Which risk-

Portfolio performance using the Jensen index

I need help getting started with this assignment. The two companies I am using are Daimler Chrysler and Citigroup. A. Calculate your portfolio's performance using the Jensen index. B. Describe the importance of these measures and interpret how your portfolio performed versus the market index. C. Based on these indices di

Financial Management

1. Why is it important to focus on total returns when measuring an investment's performance? 7. Stock A has a beta of 1.5, and stock B has a beta of 1.0. Determine whether each of the statements below is true or false. a. Stock A must have a higher standard deviation than Stock B. b. Stock A has a higher expected return

Managerial Finance

1.Compare the following risk preferences: (a) risk-averse, (b) risk-indifferent, and (c) risk-seeking. Which is most common among financial managers? 2.Explain how the range is used in sensitivity analysis. 3. Explain the meaning of each variable in the capital asset pricing model (CAPM) equation. What is the security mark

Investments: tax free vs taxable; HP on margin; expected return; standard deviation Suppose your tax bracket is 20%. Would you prefer to earn a 8% taxable return or a 6% tax-free return? What is the equivalent taxable yield of the 6% tax-free return? Refer long description for other problems.

1. Suppose your tax bracket is 20%. Would you prefer to earn a 8% taxable return or a 6% tax-free return? What is the equivalent taxable yield of the 6% tax-free return? 2. Suppose that HP is currently selling at $25 per share. You buy 500 shares using $7,500 of your own money and borrowing the remainder of the purchase pr

Break Even, CAPM

See attached file. 1. Diamond, Inc. only sells 1 carat diamond rings for $5,000. The cost of the diamonds is $2,200 per carat. Store rent is $2,000 per month and a commission is paid to the salesperson for each $1,000 ring sold. Fixed salaries amount to $20,000 per month. How many rings must be sold to break-even each m

CAPM, DCF, cost of preferred stock and new common stock: Gao Computing

Please also see file attached. Start with the partial model attached. The stock of Gao Computing sells for $50, and last year's dividend was $2.10. A flotation cost of 10% would be required to issue new common stock. Gao's preferred stock pays a dividend of $3.30 per share, and the new preferred could be sold at a price to