Mega Plc has been listed on the London Stock Exchange since 2008. The company has the...

 

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Mega Plc has been listed on the London Stock Exchange since 2008. The company has the beta of 1.4 and an expected annual return of 14%. The estimated annual return on the market index (FTSE100) is 11.5%, and the Bank of England's base rate (risk free rate) currently stands at 1.5% per year. Required: (a) Explain whether Mega Pic's stock is aggressive or defensive stock. (5 marks) (b) According to the Capital Asset Pricing Model (CAPM), what is the required return on Mega Plc's share? (5 marks) (c) Calculate alpha of Mega Pic's stock and suggest the trading opportunity for an investor. (5 marks) (d) Discuss the three forms of efficient market hypothesis and the implications for corporate finance. e Mega Plc has been listed on the London Stock Exchange since 2008. The company has the beta of 1.4 and an expected annual return of 14%. The estimated annual return on the market index (FTSE100) is 11.5%, and the Bank of England's base rate (risk free rate) currently stands at 1.5% per year. Required: (a) Explain whether Mega Pic's stock is aggressive or defensive stock. (5 marks) (b) According to the Capital Asset Pricing Model (CAPM), what is the required return on Mega Plc's share? (5 marks) (c) Calculate alpha of Mega Pic's stock and suggest the trading opportunity for an investor. (5 marks) (d) Discuss the three forms of efficient market hypothesis and the implications for corporate finance. e

Answer rating: 100% (QA)

SOLUTION a A stock is considered aggressive if it has a beta greater than 1 meaning it is more volatile than the market On the other hand a stock is c... View the full answer