blem 8-09 Stock A has a risk premium of 6.2 percent. If Treasury bills yield 2.2 percent and the expected return on the market is 9.2 percent, what is the
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Problem 8-09
Stock A has a risk premium of 6.2 percent. If Treasury bills yield 2.2 percent and the expected return on the market is 9.2 percent, what is the stock’s beta coefficient? Round your answer to two decimal places.
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- Problem 9-9 Consider the following table, which gives a security analyst's expected return on two stocks in two particular scenarios for the rate of return on the market: Market Return Aggressive Stock Defensive Stock 6% -4% 23 37 11 a. What are the betas of the two stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Beta Aggressive stock Defensive stock b. What is the expected rate of return on each stock if the two scenarios for the market return are equally likely to be 6% or 23%? (Do not round intermediate calculations. Round your answers to 1 decimal place.) Expected Rate of Return Aggressive stock % Defensive stock %8.4 Assume that the risk-free rate is 3% and the market risk premium is 4%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 1.7? Round your answer to two decimal places. %Problem 6-12Required Rate of Return Stock R has a beta of 1.5, Stock S has a beta of 0.50, the expected rate of return on an average stock is 11%, and the risk-free rate is 5%. By how much does the required return on the riskier stock exceed that on the less risky stock? Round your answer to two decimal places. %
- #25 A stock has an expected return of 14.00%. The risk-free rate is 2.64% and the market risk premium is 7.99%. What is the β of the stock? Answer format: Number: Round to: 2 decimal places.Question 29 Assume the following data for a stock: risk-free rate 5 percent: beta (market) = 1.4; beta (size) - 0.4; beta (book-to- market)-1.1; market risk premium - 13 percent; size risk premium 9.7 percent; and book-to-market risk premium = 11.2 percent. Calculate the expected return on the stock using the Fama-French three-factor model. O 26.5 percent 14.8 percent O 25.1 percent 12.0 percentAdditional Problem 8-1 Consider the single-index model. The alpha of a stock is 1.00%. The return on the market index is 12.75%. The risk-free rate of return is 5.75%. The stock earns a return that exceeds the risk-free rate by 7.00%, and there are no firm-specific events affecting the stock performance. What is the beta of the stock? (Round your answer to 2 decimal places.) Beta
- Question 4 The risk-free rate of return is 2.7 percent, the inflation rate is 3.1 percent, and the market risk premium is 6.9 percent.What is the expected rate of return on a stock with a beta of 1.08?Select one:A. 12.22 percentB. 11.47 percentC. 10.15 percentD. 10.92 percent8.9 Stock R has a beta of 2.3, Stock S has a beta of 0.9, the required return on an average stock is 8%, and the risk-free rate of return is 6%. By how much does the required return on the riskier stock exceed the required return on the less risky stock? Round your answer to two decimal places.Problem 9-19 Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 12%. A stock has an expected rate of return of 7%. What is its beta? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Beta
- 8.3 Assume that the risk-free rate is 6% and the required return on the market is 10%. What is the required rate of return on a stock with a beta of 1? Round your answer to two decimal places.Question 4 A stock has an expected return of 13.6 percent, the risk - free rate is 3.7 percent, and the market risk premium is 7.1 percent. What must the beta of this stock be?18 A stock has an expected return of 13.74 percent. The return on the market is 12.68 percent, and the risk- free rate of return is 3.24 percent. What is the beta of this stock? A 0.658 B. 1.112 C 1.093 D. в ос OD O 1.402 A O