Here are data on two companies. The T-bill rate is 4% and the market risk premium is
Question:
What would be the fair return for each company, according to the capital asset pricing model(CAPM)?
Transcribed Image Text:
Company Forecasted return Standard deviation of returns $1 Discount Store 12% 8% 1.5 Everything $5 11% 10% 1.0
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Answer rating: 76% (17 reviews)
The expected return is the return ...View the full answer
Answered By
Asim farooq
I have done MS finance and expertise in the field of Accounting, finance, cost accounting, security analysis and portfolio management and management, MS office is at my fingertips, I want my client to take advantage of my practical knowledge. I have been mentoring my client on a freelancer website from last two years, Currently I am working in Telecom company as a financial analyst and before that working as an accountant with Pepsi for one year. I also join a nonprofit organization as a finance assistant to my job duties are making payment to client after tax calculation, I have started my professional career from teaching I was teaching to a master's level student for two years in the evening.
My Expert Service
Financial accounting, Financial management, Cost accounting, Human resource management, Business communication and report writing. Financial accounting : • Journal entries • Financial statements including balance sheet, Profit & Loss account, Cash flow statement • Adjustment entries • Ratio analysis • Accounting concepts • Single entry accounting • Double entry accounting • Bills of exchange • Bank reconciliation statements Cost accounting : • Budgeting • Job order costing • Process costing • Cost of goods sold Financial management : • Capital budgeting • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback period • Discounted cash flows • Financial analysis • Capital assets pricing model • Simple interest, Compound interest & annuities
4.40+
65+ Reviews
86+ Question Solved
Related Book For
Question Posted:
Students also viewed these Accounting questions
-
According to the capital asset pricing model: Ri = RF + (RM RF) bi where Ri, the expected return on security i, is the sum of RF, the return on a risk-free investment, and (RM RF) bi is the...
-
Here are data on $ 1,000 par value bonds issued by Microsoft, GE Capital, and Morgan Stanley at the end of 2012. Assume you are thinking about buying these bonds as of January 2013. Answer the...
-
Here are data on two stocks, both of which have discount rates of 15%: Stock A Stock B Return on equity... 15.00% 10.00% Earnings per share... $2.00 $1.50 Dividends per share. $1.00 $1.00 Discount...
-
A mixture of 1 kmol carbon dioxide, 2 kmol carbon monoxide, and 2 kmol oxygen, at 25C, 150 kPa, is heated in a constant pressure steady state process to 3000 K. Assuming that only these same...
-
Assume that the diagram for Exercises 1 - 4 refers to a high school with 800 students. Draw a new diagram showing the probabilities if 20 sophomores moved from geometry to advanced algebra. Sophomote...
-
Kenny Merinoff and his son, John, own all outstanding stock of Flamingo Corporation. Both John and Kenny are officers in the corporation and, together with their uncle, Ira, comprise the entire board...
-
Suppose that the firm of Example 17.6 has a value of \(\$ 200,000\) instead of \(\$ 100,000\). Perhaps this makes the bond more secure. What, in fact, is the value of the bond in this case? Example...
-
Mitchell Farms, Inc., has authorized capital of 10,000 shares of preferred 5 percent stock, $ 50 par value, and 50,000 shares of common stock , par value $ 5. The following account balances are taken...
-
2. (40%) Use the Quartus tools to fill the table for the tristate buffer. tristate buffer a 0 1 Z XU 0 1 en Z X U What is your observation from the resulting table?
-
The limit order book for a security is as follows: The specialist receives the following, in order: Market order to sell 300 shares Limit order to buy 100 shares at 25.38 Limit order to buy 500...
-
Are the following true or false? Explain. a. Stocks with a beta of zero offer an expected rate of return of zero. b. The CAPM implies that investors require a higher return to hold highly volatile...
-
Characterize each company in the previous problem as underpriced, overpriced, or properly priced.
-
According to a Pew Poll done in 2010, 50% of adults aged 25-29 had access only to a cell phone (no landline). Assume that you randomly sample 50 adults aged 25-29, and ask whether they have access...
-
Find all possible values for each expression. \(\left(-\frac{2}{3}+j ight)^{2 / 3}\)
-
Solve the linear, second-order IVP. \(\ddot{x}+4 \dot{x}+4 x=e^{-t}, x(0)=1, \dot{x}(0)=1\)
-
Solve the linear, first-order IVP. \(\dot{u}=(1-u) \cos t, u(0)=\frac{1}{2}\)
-
Solve the linear, first-order IVP. \((t-1) \dot{u}+t u=2 t, u(0)=1\)
-
Solve the linear, first-order IVP. \(\frac{1}{2} \dot{x}+t x=\frac{1}{2} t, x(0)=\frac{1}{3}\)
-
The pyrolysis of acetaldehyde is believed to take place according to the following sequence: CH3CHOk1CH3+CHOCH3+CH3CHOk2CH3+CO+CH4CHO+CH3CHOk3CH3+2CO+H22CH3k4C2H6 a. Derive the rate expression for...
-
If someone's Z-score for a variable was 0.67. Their score is a significant extreme score. Their score is not significant. O Their score is slightly above average. O Their score is an outlier.
-
Suppose you are interested in purchasing AT&T stock. You know that AT&T stock has had an average rate of return of 8 % over the last 5 years. Explain how you could use descriptive statistics to help...
-
When technical analysts say a stock has good "relative strength," they mean: a. The ratio of the price of the stock to a market or industry index has trended upward. b. The recent trading volume in...
-
Even if prices follow a random walk, they still may not be informationally efficient. Explain why this may be true, and why it matters for the efficient allocation of capital in our economy.
-
One seeming violation of the Law of One Price is the pervasive discrepancy of closed end fund prices from their net asset values. Would you expect to observe greater discrepancies on diversified or...
-
S&J Catering is a small catering business operating in Western Sydney. Business partners, Jack and Simon, established the business a year ago. To start up the business, the partners contributed...
-
In 20X1, Lee was hurt in the course of his employment with Foster Farms. In 20X1, Lee was paid the following amounts from Foster Farms' worker's compensation insurance company: $30,000 for a physical...
-
Briefly describe tax administrative matters including: Tax collection and withholding mechanisms (PAYG withholding, PAYG instalments).
Study smarter with the SolutionInn App