Purchase Solution

Estimating the value of beta of given stock

Not what you're looking for?

Ask Custom Question

(Beta and required return) The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.
a. Calculate the expected returns on the stock market and on Chicago Gear stock.
b. What is Chicago Gear's beta?
c. What is Chicago Gear's required return according to the CAPM?

State of Economy Probability Stock Market Chicago Gear
Stagnant 0.2 -9% -16%
Slow 0.35 10% 15%
Average 0.3 14% 25%
Rapid 0.15 25% 35%

Attachments
Purchase this Solution

Solution Summary

Solution describes the steps to estimate the value of beta in the given case. It also calculates required return according to CAPM.

Solution Preview

Please refer attached file for better clarity of tables and formulas.

a. Calculate the expected returns on the stock market and on Chicago Gear stock.
Expected return on stock market = 0.2*-9% + 0.35*10% + 0.30*14%+0.15*25%=9.65%
Expected return on Chicago Gear = 0.2*-16% + 0.35*15% + 0.30*25%+0.15*35%=14.80%

b. ...

Solution provided by:
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
  • "Thank you"
  • "Really great step by step solution"
  • "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
  • "Thanks Again! This is totally a great service!"
  • "Thank you so much for your help!"
Purchase this Solution


Free BrainMass Quizzes
Know Your Statistical Concepts

Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.

Measures of Central Tendency

Tests knowledge of the three main measures of central tendency, including some simple calculation questions.

Terms and Definitions for Statistics

This quiz covers basic terms and definitions of statistics.

Measures of Central Tendency

This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.