Stock X has a beta of 2.5 and an expected return of 22.5%. Stock Y has a beta of 1.5 and an expected return of 15.0 %. Also, the market risk premium is 7.2%. What would be the risk - free rate if these two stocks are correctly priced? (solve with excel)
Q: The stock of company XYZ is currently price at $80 per share. Its earnings this year (T=0) are $4.00…
A: Current price = $80Earnings = $4Dividend payout ratio = 40%ROE = 15%Required return = 13%
Q: Your client is invested in a registered indexed-linked annuity (RILA). The RILA contains a 7% floor,…
A: Year 1:The S&P 500 return is 12%.The cap rate is 10%, so the credited interest rate is capped at…
Q: Problem 1 Calculate the break even number of units it the fixed expenses are $7,000 and the…
A: The objective of this question is to calculate the break-even point in units. The break-even point…
Q: Chee Chew's portfolio has a beta of 1.25 and earned a return of 13.6% during the year just ended.…
A: Beta1.25Returns13.6%Risk-free rate3.9%Return on the market portfolio10.7%
Q: eld Investment account returns 8.0% annually. Estimate how much you have to deposit today Question…
A: Given:Annual interest rate (r) = 8%Time (t) for all scenarios:t=3 years for Question 1t=1,2,3 years…
Q: What annual interest rate do you need to find in order for a deposit of $500 to grow to $1,685 in 13…
A: Compound interest is a financial concept that involves the calculation of interest not just on the…
Q: The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of…
A: The objective of the question is to forecast the Year 2 income statement for Cold Goose Metal Works…
Q: suppose you short sell 100 shares of IBX, now selling at $172 per share. (a) what is your maximum…
A: Given:Number of shares Short selling price per share Stop-by priceProblem:The problem has two parts,…
Q: Bruin, Incorporated, has identified the following two mutually exclusive projects: Year Cash Flow…
A: YearCash flow (A)Cash flow…
Q: The estimated annual return I, of a hedge fund for the next 12 years is either 5%, 6%, 7.5% or 9%…
A: Please note that whether the annual return varies or remains constant for the entire 12 year period…
Q: Ursus, Incorporated, is considering a project that would have a ten-year life and would require a…
A: Cost of equipment (Zero salvage value)$4,500,000Sales revenue$2,900,000Variable…
Q: Last year the P. M. Postem Corporation had sales of $426, 000, with a cost of goods sold of…
A: The objective of the question is to construct the income statement of P. M. Postem Corporation and…
Q: C Ltd is considering adding a new product line. Adding the product line would require additional…
A: The process by which a company's management chooses how much of its profits to provide to its…
Q: ing the reconstruction of a mountain road. The vehicle traffic increases each year; hence the…
A: The question addresses a cost-benefit analysis for the reconstruction of a mountain road by the…
Q: Vigo Vacations has $200 million in total assets, $5 million in notes payable, and $21 million in…
A: The objective of the question is to calculate the debt ratio for Vigo Vacations. The debt ratio is a…
Q: What is the return (%) that can be made from correctly exploiting the mispricing given these three…
A: The exploitation of mispricing means taking advantage of profitable opportunities due to the…
Q: The ability of a business to pay its debts is called a. a fiscal year. O b. solvency. O c.…
A: The ability of a business to meet its long-term debts is called solvency. If the solvency is high,…
Q: What is the rate of interest by what $100 becomes $200 in 4 years?
A: The rate of interest, expressed as a percentage, is a pivotal aspect in the financial landscape,…
Q: Wettway Sailboat Corporation is considering whether to launch its new Margo-class sailboat. The…
A: Initial cost = $3,800,000Selling price = $48,000Variable cost = $27,000Fixed cost = $535,000useful…
Q: Tick all those statements on options that are correct (and don't tick those statements that are…
A: Two categories of financial derivatives are call and put options, which provide the holder the…
Q: How does a firm's dividend policy reflect its approach to financial decision-making, and what are…
A: The concept ensures that the company prioritizes its investments and growth before committing to…
Q: Find the external rate of return for the following cash flows using th
A: The modified internal rate of return is used in capital budgeting to evaluate the profitability of…
Q: A put currently has a strike price of $54 and a maturity of six months. what will be the…
A: Put option is derivative product that derive value from underlying assets and put gives option to…
Q: An ordinary share that pays half-yearly dividends is due to make a dividend payment of £5. per share…
A:
Q: Which statement is true about the difference between futures and forward contracts?
A: The true statement about the difference between future and forward contracts is:3. Futures contracts…
Q: Holly's Art Galleries recently reported $7.9 million of net income. Its EBIT was $13 million, and…
A: The objective of the question is to calculate the interest expense of Holly's Art Galleries. The…
Q: n of the following are owned by a company and can be used to secure a mortgage bond? Multiple Choice…
A: Assets can be used to secure a mortgage bond.
Q: 11. Jeff bought an increasing perpetuity-due with annual payments starting at 5 and increasing by 5…
A: Perpetuity refers to a series of periodic payments that are made in perpetuity, i.e., there is no…
Q: 1 calculate the net present in A4 of the following cash flow stream shown in AS through LogGbeint…
A: The objective of the question is to calculate the net present value (NPV) of a project with a given…
Q: Which of the following intangible assets should not be amortized? a. Copyrights b. Customer lists…
A: Intangible assets are non physical assets that lack a physical substance but hold economic value for…
Q: Jill Clark invested $25,850 in the bonds of Industrial Aromatics, Inc. She held them for 13 months,…
A: Capital gain refers to the profit realized from the sale of an asset, calculated by subtracting the…
Q: A Bank offers both loans and deposits at a nominal interest rate of 4% that is continuously…
A: Interest rate (i): 4% with continuous compoundingMaturity of bond: 3yearsFace value: £10,000Annual…
Q: Lake Company reported beginning and ending Total Assets of $25,000 and $35,000 respectively. The Net…
A:
Q: The Nelson Company has $1,444,500 in current assets and $535,000 in current liabilities. Its initial…
A: With out pushing its current ratio below 1.8 they can increase short term debt by maximum of…
Q: Tick all those statements on options that are correct (and don't tick those statements that are…
A: Two categories of financial derivatives are call and put options, which provide the holder the…
Q: You manufacture car parts using equipment and direct labor. You are planning to buy a new machine…
A: Direct labor is a crucial component in the calculation of the cost of goods sold (COGS) for…
Q: It is 16th July. A company has a portfolio of stocks worth $100 million. The beta of the portiolio…
A: The objective of the question is to determine the position the company should take in the futures…
Q: CoinSoft was a company that developed software to manage portfolios of cryptocurrencies. In 2021,…
A: Revenue = 14 millionUpgrades = 4 millionDowngrades = 0.5 millionReduced revenue = 0.8 million
Q: The following table represents the term structure of spot interest rates: Rate (% p.a., semi- annual…
A: Bond valuation aims to determine the present value of a bond's future cash flows, which include the…
Q: A $1,000 bond quoted at 98 could be purchased or sold for a. $980. b. $1,098. c. $1,000. Od. between…
A: Face Value = fv = $1000Quoted Price = qp = 98
Q: Consider the following scenario analysis: Scenario Recession Required A Probability 0.3 Normal…
A: When the probability of each scenario along with the weight of each security is incorporated in the…
Q: Karamo's Shoe Stores Incorporated is considering opening an additional suburban outlet. An aftertax…
A: Coefficient of variation shows the relative measurement of the standard deviation with its mean…
Q: An investment will provide the following future cash flows. Year 1 = 6,768 Year 2 = 3,989 Year 3 and…
A: Present value is the value that a future cash flow or series of cash flows is worth in today's…
Q: shot to complete the table and answer the questions that follow. GRAB GOOG US Equity 95) Actions…
A: Options are derivative products and that are related to stock prices and gives the opportunity to…
Q: You wish to put your savings of £5000 into a bank account. There are two different offers from bank…
A:
Q: A lottery corporation sells a ticket for a chance to win $500,000. If you win, the prize winnings…
A: Present Value is the current price of future value which will be received in near future at some…
Q: Consider two competing projects, for which MARR = 12%: Initial Equivalent Investment, P Annuity, A…
A: Initial MARR = 12%Changed new MARR = 25%RoR for Project A = 17.7%RoR for Project B = 15%
Q: Martinez Industries had the following operating results for 2021: Sales = $35,126; Cost of goods…
A: The difference between capital expenditures and depreciation is called net capital spending. It…
Q: Suppose that the S&P 500, with a beta of 1.0, has an expected return of 12% and T-bills provide…
A: The objective of the question is to calculate the expected return and beta of portfolios constructed…
Q: what is the Difference between derivatives and insurance contract
A: Derivatives and insurance contracts are both financial instruments used for managing risk, but they…
Manshuk
Step by step
Solved in 3 steps with 2 images
- You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?(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.(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.
- *Stock A has a beta of 1.3 and an expected return of 10.2. Stock B has a beta of 0.8 and an expected return of 8.7. If these stocks are priced correctly according to the CAPM, what is the risk-free rate? Give your answer in percentage to the nearest basis point.Suppose Stock A has B = 1 and an expected return of 11%. Stock B has a B = 1.5. The risk- free rate is 5%. Also consider that the covariance between B and the market is 0.135. Assume the CAPM is true. Answer the following questions: a) Calculate the expected return on share B. b) Find the equation of the Capital Market Line (CML). c) Build a portfolio Q with B = 0 using actions A and B. Indicate weights (interpret your result) and expected return of portfolio Q.Stock Y has a beta of 1.2. An expected return of 11.4%. Stock Z has a beta of .8 and an expected return of 8%. If the risk free rate is 2.5% and the market risk premium is 7%, are these stocks priced correctly? If not, what should the correct prices be? pls type in computer. Thanks
- Suppose the market risk premium is 9 % and also that the standard deviation of returns on the market portfolio is 0.26 . Further assume that the correlation between the returns on ABX (Barrick Gold) stock and returns on the market portfolio is 0.62 , while the standard deviation of returns on ABX stock is 0.36 . Finally assume that the risk-free rate is 2 %. Under the CAPM, what is the expected return on ABX stock? (write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)2) Stock Y has a beta of 1.28 and an expected return of 13.7 percent. Stock Z has a beta of 1.02 and an expected return of 11.4 percent. What would the risk-free rate have to be for the two stocks to be correctly priced relative to each other?Stock X has a beta of 1.15 and an expected return of 11.1 percent. Stock Y has a beta of 1.2 and an expected return of 11.5 percent. What is the risk - free rate of return assuming that both stock X and stock Y are correctly priced?
- Give typing answer with explanation and conclusion the expected return on stock A is 11.35%. the expected return on stock B is 8.7%. assuming CAPM holds, if the beta of stock A is higher than the beta of stock B by 0.17, what should the risk premium be?1. Stock Y has a beta of 1.2 and an expected return of 11.1 percent. Stock Z has a beta of .8 and an expected return of 7.85 percent. If the risk-free rate is 2.4 percent and the market risk premium is 7.2 percent, the reward-to-risk ratios for stocks Y and Z are ____ and ____ percent, respectively. Since the SML reward-to-risk is ____ percent, Stock Y is ____(undervalued/ overvalued) and Stock Z is ____(undervalued/ overvalued).The expected return and standard deviation of Stock A are 12% and 24%, respectively. The expected return and standard deviation of Stock B are 5% and 19%, respectively. The correlation between the two stocks is 0.4. The risk-free rate in the economy is 1%. A. What is the Sharpe ratio for Stock A and Stock B? Show your calculation steps briefly and clearly. B. Calculate the optimal risky portfolio P*. You do not need to show your calculation steps for this subquestion. C. Now suppose that the correlation between the two stocks is -0.2 (instead of 0.4). Re-calculate the optimal risky portfolio P* and compare it to your answer in Part B. What do you observe? You do not need to show your calculation steps for this subquestion. D. Using the results above, briefly explain why investors might still consider investing in stocks with a (relatively) low Sharpe ratio as a part of their portfolio.