Share
Explore BrainMass

# Expected Rate of Return

Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2 . a. Calculate the expected return from Dell. b. Find the highest expected return that is offered by one of these stocks. c. Find the lowest expected return that is offered by one of these stocks. d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%. e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%?
Stock Beta Expected Return [ rf + beta ( rm rf)]

Amazon 2.16 15.4
Ford 1.75 12.6
Dell 1.41 10.2
Starbucks 1.16 8.4
Boeing 1.14 8.3
Disney .96 7.0
Newmont .63 4.7
Exxon Mobil .55 4.2
J. & Johnson .50 3.8
Campbell Soup .30 2.4

#### Solution Preview

Expected Rate of Return
Suppose that the Treasury bill rate were 6% rather than 4%. Assume that the expected return on the market stays at 10%. Use the betas in Table 8.2.
a. Calculate the expected return from Dell.
b. Find the highest expected return that is offered by one of these stocks.
c. Find the lowest expected return that is offered by one of these stocks.
d. Would Ford offer a higher or lower expected return if the interest rate were 6% rather than 4%? Assume that the expected market return stays at 10%.
e. Would Exxon Mobil offer a higher or lower expected return if the interest rate were 8%?

Stock Beta Expected Return [rf + beta (rm - rf)]

Amazon 2.16 15.4
Ford ...

\$2.19