Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm- R;) is 89%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's expected return should be 10.5396 B) 14.24% 23.15% 6.59%
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- Assume that the risk-free rate of return is 4% and the market risk premium (ie., Rm- R:) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's expected retum should be A) 10.53% B) 14.24% 23.15% 6.59%Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - Rf) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock's expected return should be -- A) 10.53% B) 14.24% 23.15% 6.59%Assume that the risk-free rate of return is 4% and the market risk premium (ie., Rm - Re) is 89%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's exoected return should be A) 10.53% B) 14.24% 23.15% D) 6.59%
- Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm- Re) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's exoected return should be ----- A) 10.53 B) 14.24% C) 2315% D) 6.59%Assume that the risk-free rate of return is 4% and the market risk premium (ie., Rm- Rf) is 89%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's expected retum should be ---- A) 10.53% B) 14.24% 23.15% D) 6.59%For an investment in a stock, the probability of the return being -10.0% is 0.3, 10.0% is 0.4, and 30.0% is 0.3. Given the probability distributions, what is the expected rate of return for the investment?Choices:A. 10.00%B. 9.50%C. 15.00%D. 12.50%E. 13.00%
- Find the required rate of return on the market if: beta is 1.23, required return on the stock is 9.50%, and risk-free rate is 2.30% A. 9.87% B. 8.40% C. 8.15% D. 8.72% E. 8.32%The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is the required rate of return on the stock, E(Ri)? Use the CAPM equation.(d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates ofreturn of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.
- Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock (b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…c) Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is foundto be half of the required return (RB) on stock B. The risk-free rate (Rf) is one-fourth of the requiredreturn on A. Return on market portfolio is denoted by RM. Find the ratio of beta of A (A) to beta of B(B). (10 marks)d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why. (10 marks)(Hint: Beta of asset i (??) =???????, where ??,?? are standard deviations of asset i and marketportfolio, ??? is the correlation between asset i and the market portfolio)(d) Suppose the risk-free rate is 4%, the market risk premium is 15% and the betas for stocks X and Y are 1.2 and 0.2 respectively. Using the CAPM model, estimate the required rates of return of Stock X and Stock Y. (e) Given the results above, are Stocks X and Y overpriced or underpriced? Explain.