Stock A has an 8.5% expected rate of return and a beta coefficient of 0.85. Stock B

Fantastic news! We've Found the answer you've been seeking!

Question:

Stock A has an 8.5% expected rate of return and a beta coefficient of 0.85. Stock B has a 10.5% expected rate of return and a beta coefficient of 1.05. The risk-free rate is 4.5% and the market risk premium is 5%.

A) What are the required rates of return for Stocks A and B?

B) Would you buy these stocks and why?

Related Book For answer-question

Fundamentals of Financial Management

ISBN: 978-1305635937

Concise 9th Edition

Authors: Eugene F. Brigham

See More Books

Posted Date: Mar 15, 2024 05:57 AM

See More Questions

1In any kind of product manufacturing situation your processes will inevitably result in a certain amount of variation Choose a particular product or process What are the implications of product or...
Northern Virginia Community College HOW MUCH FINANCIAL RISK SHOULD YOU TAKE? Mark D. D'Antonio Nova Southeastern University FORT LAUDERDALE, FLORIDA, U.S.A. Abstract A successful retirement...
Assume that you recently graduated with a major in finance and that you just landed a job as a financial planner with Barney Smith Inc., a large financial services corporation. Your first assignment...
Evaluate each expression if possible. V0.49
Assume that Patricia decides to use the following weights for the critical success factors: Technology availability and support.....................0.3 Availability and quality of public...
The following balance sheet and income statement data were taken from the records of Mako Retail Supply for the year ended December 31, 2018: Prepare the operating section of the statement of cash...
The cash flows associated with a project are shown below. The interest rate varies from year to year as shown. Determine an equivalent uniform annual series of cash flows. EOY Cash Flow Interest...
Pro Tire manufactures tires for all- terrain vehicles. Pro Tire uses job costing and has a perpetual inventory system. On November 22, Pro Tire received an order for 190 TX tires from ATV Corporation...
3. Katelyn's financial manager invested her savings in a portfolio of shares that comprised of investments of $2000, $1800, and $3100 in the infrastructure, high- tech, and garment industries,...
A firm is considering the project who have following cash flows Year Rs. Rs. 14,429 16,305 18,421 Calculate NPV of the project if the cost of capital is 10 per cent. What is the project's IRR? 0 1 2...
Combined Furniture Warehouse received an invoice of $8000 dated November 3rd with terms 2/10, 1/20, n/30. Combined Furniture made a payment of $2,940 on November 12th. How much did Combined Furniture...
Of the $120 billion spent by the Federal Housing Administration and the Veterans Administration in paying for hew homes from 1934 to 1962, what amount went to white families? Why and how?
Well Co. has a $20,000 receivable from Eight Co. and a $40,000 receivable from Cotten Corporation. Well also has a $30,000 payable to Sloane Co. Well owns 80% of Eight, 45% of Cotten, and 55% of...
When creating an executive compensation plan, which factor should the HR leader consider as critical? Why and how?
If a cash method tenant writes a $10,000 check on November 20th for back rent in October, but waits to mail the check until December 25th. The unrelated landlord receives the check on January 2nd....
The masses of the two blocks A and B shown are 60 kg and 20 kg respectively. The inclined plane is smooth. If the system is released from rest, determine after 5 seconds: - The acceleration of the...
In a system with light damping (c < cc), the period of vibration is commonly defined as the time interval d = 2/d corresponding to two successive points where the displacement-time curve touches one...
Farley Inc. has perpetual preferred stock outstanding that sells for $30 a share and pays a dividend of $2.75 at the end of each year. What is the required rate of return?
MPI Incorporated has $6 billion in assets, and its tax rate is 35%. Its basic earning power (BEP) ratio is 11%, and its return on assets (ROA) is 6%. What is MPIs times-interest-earned (TIE) ratio?
Kayes Kitchenware has a market/book ratio equal to 1. Its stock price is $12 per share and it has 4.8 million shares outstanding. The firms total capital is $110 million and it finances with only...
Smart Manufacturing Systems Pty Ltds accountant recently prepared the following data from the companys accounting records for the year ended 30 June 2019. Factory overhead is applied at the rate of...
During the year ended 30 June 2019, Beautiful Bottles Pty Ltd incurred the following costs in connection with its production activities. Required (a) Calculate the relationship between factory...
Telecommunications company Toronto Ltd signed a 15year deal to sell capacity on its cable network to a rival company for $200 million. The deal was completed on the last day of Toronto Ltds financial...

Stock A has an 8.5% expected rate of return and a beta coefficient of 0.85. Stock B

Question:

Expert Answer:

A The required rate of return for a stock can be calculated using the Capital Asset Pricing Model CA... View the full answer

Fundamentals of Financial Management

Students also viewed these finance questions