Here are data on two companies. The T-bill rate is 5.6% and the market risk premium is 7.1%. Company $1 Discount Store Everything $5 Forecast return. 14% 13% Standard deviation of returns Beta 16% 18% Company $1 Discount Store Everything $5 Required: What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.) Expected Return 1.6 % % 1.0

Here are data on two companies. The T-bill rate is 5.6% and the market risk premium is 7.1%. Company $1 Discount Store Everything $5 Forecast return. 14% 13% Standard deviation of returns Beta 16% 18% Company $1 Discount Store Everything $5 Required: What would be the expected rate of return for each company, according to the capital asset pricing model (CAPM)? (Round your answers to 2 decimal places.) Expected Return 1.6 % % 1.0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company Forecast return Standard deviation of returns Beta $1 Discount Store Everything $5 12% 8% 1.5 11% 10% 1.0 What should be the expected rate of return for each company, according to the capital asset pricing model
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%.   Company $1 Discount Store Everything $5 Forecast return 12% 11% Standard deviation of returns 8% 10% Beta 1.5 1.0 What would be the fair return for $1 Discount Store according to the capital asset pricing model (CAPM)? Enter your answer as a decimal.
You have assigned the following values to these three firms: Upcoming Dividend $0.50 Estee Lauder Kimco Realty Nordstrom Price $36.00 75.00 11.00 1.58 2.00 Estee Lauder required return Kimco Realty required return Nordstrom required return Assume that the market portfolio will earn 17.20 percent and the risk-free rate is 8.20 percent. Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.) CAPM Growth 11.40% 17.00 8.80 % % % Beta 0.92 1.28 1.24 Constant-Growth Model % % %
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company $1 Discount Store Everything $5 Actual return 12% 11% Standard deviation of returns 8% 10% Beta 1.5 1.0 What would be the required return for $1 Discount Store according to the capital asset pricing model (CAPM)? Enter your answer as a decimal.
1. Using the Capital Asset Pricing Model (CAPM), what's this company's cost of common equity? ·Expected market return = 10% Risk-free rate = 4% Beta = 1.3
The current risk-free rate of return (rRf) is 4.67% while the market risk premium is 5.75%. The Burris Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Burris’s cost of equity is? A 9.96 B) 8.964 C) 11.952 D) 10.458
Assume that you are a consultant to Thornton Inc., and you have been provided with the following data: risk 1.8. What is the cost of equity from free rate rRF = 5.5%; market risk premium RPM retained earnings based on the CAPM approach? = 6.0%; and b =
The risk-free rate of return is 2.5% and the market risk premium is 8%. Rogue Transport has a beta of 2.2. Using the capital asset pricing model, what is Rogue Transport's cost of retained earnings? a.20.1% b.19.6% c.17.7% d.16.4%
You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations. b. What would the levered cost of equity equal for this firm at a debt-equity ratio (D:E) of 3:1? c. What would the required rate of return for the company equal if it were to be acquired under the leveraged buyout structure (i.e., what would the estimated firm WACC equal to under a…
You have the following initial information on which to base your calculations and discussion: Debt yield = 2.5% Required Rate of Return on Equity = 13% Expected return on S&P500 = 8% Risk-free rate (rF) = 1.5% Inflation = 2.5% Corporate tax rate (TC) = 30% Current long-term and target debt-equity ratio (D:E) = 1:3 a. What is the unlevered cost of equity (rE*) for this firm? Assume that the management of the firm is considering a leveraged buyout of the above company. They believe that they can gear the company to a higher level due to their ability to extract efficiencies from the firm’s operations. Thus, they wish to use a target debt-equity ratio of 3:1 in their valuation calculations.
You have assigned the following values to these three firms: US Bancorp Praxair Eastman Kodak Price $34.55 37.80 50.35 Upcoming Dividend $ 2.35 1.36 2.00 US Bancorp required return Praxair required return Eastman Kodak required return Growth CAPM 6.20% Assume that the market portfolio will earn 13.30 percent and the risk-free rate is 6.00 percent. Compute the required return for each company using both CAPM and the constant-growth model. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. 0.18 X % 0.24 X % 0.11 % 13.50 13.80 X Answer is complete but not entirely correct. Beta 1.67 2.49 0.64 Constant-Growth Model 0.16 X % 0.18% 0.17
As per Capital Asset Pricing Model (CAPM) : Re=Rf+(Rm-Rf)βwhere, Re= Required rate of returnRf= Risk free rate of return = 0%Rm = Market return or Expected return on market = 3.3%β = Beta of the stock = 1.24Now, Re= Rf + Rm - Rf βRe= 0 + 3.3 - 0 ×1.24Re= 4.092% To calculate the abnormal return we will use the formula: = E(R) - Re= 3% - 4.092% = -1.092% or - 0.01092 How did you get the 4.092%?

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