Question: 2. If security X's beta is 1.30, the expected return on the market is 6%, and the risk- free rate is 1%. a) What must

2. If security X's beta is 1.30, the expected return on the market is 6%, and the risk- free rate is 1%. a) What must the expected return on this stock be? (10 points) b) If the current expected return of security X is 8%, is the stock price fair, undervalued or overvalued? (10 points)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

Question 25 (0.5 points) Stock A has a beta of 1.3, while Stock B has a beta of 0.9. The expected return of the market is 6%. The risk-free rate is 2%. By how much does Stock As required return...

QUESTION 1: Westjet Limited is considering building a new manufacturing plant to produce wjets on the land it bought 10 years ago for $5,000,000. The land is currently appraised at 15,000,000. The...

D Question 7 You have the following data on The Home Depot, Inc. Market value of long terme $20.866 million Market value of common stock: $171.130 milion Beta: 1.02 Yield to maturity on debut with 10...

Cali a copy Faste Format Painter Clipboard . et Aanco 1 Nom Me Sedingt Heading TE A firplar Font Sind QUESTION FOUR (20 Points) (a) Bayyoud, Inc. has presented the following information shown below...

QUESTION 1: Westjet Limited is considering building a new manufacturing plant to produce wjets on the land it bought 10 years ago for $5,000,000. The land is currently appraised at 15,000,000. The...

Problem 1:1) Use CAPM to estimate the betas of Microsoft (MSFT) and Facebook (FB). You need to use both (a) the OLS (i.e. Linear Regression) method and (b) the COVARIANCE.S and VAR.S functions to...

Discoverit! Company has just paid $1.5 dividend payment. The current stock price is $20 and has 2,500,000 outstanding shares. Calculate the growth rate using the dividend payments given under...

1. An investor with a portfolio return of 6.5% is thinking of adding one of the three following stocks to his portfolio: Return Dell 5% Apple 9% IBM 7.5% Which one would contribute to decreasing the...

2. A stock has a beta of .95, the expected return in the market is 12% and the risk-free rate is 4%. What must the expected return on this stock be? a. 10% b. 8.89% c. 13% d. 11.60% e. None of the...

the dividend payment is 1.5 MEDIAN X Fx -(1+Question 1 Question Discoveritl Company has just paid $1.5 dividend payment. The current stock price is $20 and has 2,500,000 outstanding shares. Calculate...

The following information pertains to Flaxman Manufacturing Company for March 2015. Assume actual overhead equaled applied overhead. March 1 Inventory balances Raw materials .......... $100,000 Work...

1234567890 ENTER The first HP calculator (HP-35), shown above, was a stack-based computer. It had had a four- register stack (x, y, z, and t, in that order, top to bottom). The "enter" key pushed the...

Subnet Plan - Scenario Zenith is an established manufacturer of gourmet swan meat snacks from Cygnet, Tasmania. They are planning on launching 8 2 new retail outlets in cities throughout Australasia...

SIMAD UNIVERSITY Class: BACC25 Subject: Islamic Accounting Instructions: a) Follow The Instructions. Midterm Exam Instructor: All Ibrahim Date: 6-4-2022 b) You Have 1.5 Hrs. To Complete This Test. c)...

Empowerment may only be appropriate in low uncertainty avoidance, individualistic and low power distance cultures, and where information and status are not protected.

6 They therefore need to work at the strategic level associated with change, adaptation and development and the operational level associated with the realism of budgetary constraints and vertical...

2 The control and use of power may be problematic. There is little formal power available to sanction members in the case of failure. Managers were selected irrespective of position in the hierarchy....