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# Finance questions: Returns, CAPM, Holding period returns

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Capital Asset Pricing Model
6.10
Suppose you invest \$27,000 in King Company Stock, which has a beta of 1.33 and in 1000 shares of Ace company stock at \$23 a share. Ace has long term growth of 4% annually. The riskless rate is 9% and the expected return rate on the market is 17%. Next year the dividend of Ace will be \$2.30 a share. Find the beta of Ace and the expected return of the portfolio.

*I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.

6.12
Knoll Inc stock has a beta of 1.25, the expected return on the market is 12%, and the riskless rate is 8%. Knoll Inc may grow annually at the rate of 3% for many, many years. Next year Knoll will pay a dividend of \$3.00. Find the price of Knoll Stock.
*I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.

6.14
Cornfeld Company stock has a beta of 1.1 and its expected return is 12%, whereas Goldenstein Company stock has beta of 1.2 and its expected retun rate is 12.3%. Find the riskless rate and the expected return rate of the market.

*I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.
R=8.7%, E(Rm)=11.7%

6.16
The expected return on the market next year is 15%, whereas the riskless rate is 6%. The beta of IBM is 0.8, its current price is \$120 per share and its dividend next year is \$6. Using CAPM, find the expected price of IBM stock next year.

*I am confused on how to achieve the answer. The answer is provided but I am confused on the steps to get it.

https://brainmass.com/statistics/central-tendency/finance-questions-returns-capm-holding-period-returns-260138

#### Solution Summary

The problem deals with fundamental issues in Finance including holding period returns, return under CAPM, risk-free rate etc.

\$2.19

## Risk, return and holding period return

1. Risk & Return and the 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

2. Holding Period Return

Based on the following information calculate the holding period return:

P0 = \$10.00
P1 = \$12.00
D1 = \$1.22

3.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

4. Sources of Risk & Diversification - convertible bond.

Address each source of risk from the portfolio perspective and how diversification impacts them. APA FORMAT 275 WORDS

5. Portfolio Theory Risk.

What is portfolio theory and why is it important to investing behavior? APA FORMAT 275 WORDS

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