Using CAPM: A stock has a of 1.2. The equity risk premium is 6 percent and
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Question 2
4.1.b - using CAPM: A stock has a β of 1.2. The expected return on the market portfolio is 8 percent and the risk free rate is 2 percent. What is the rate of return required by investors in the stock?
Question 3
4.2.a - using CAPM: A stock has a β of 1.13 and an expected return of 12.1 percent. The risk-free asset earns a return of 5 percent.
What is the expected return of a portfolio that is equally invested in the two assets?
Question 4
4.2.b - using CAPM: A stock has a β of 1.13 and an expected return of 12.1 percent. The risk-free asset earns a return of 5 percent.
If a portfolio of the two assets has a β of 0.5, what are the weights of the assets in the portfolio?
Question 5
4.2.c - using CAPM: A stock has a β of 1.13 and an expected return of 12.1 percent. The risk-free asset earns a return of 5 percent.
If a portfolio of the two assets has an expected return on 10 percent, what is the portfolio β?
Question 6
4.2.d - using CAPM: A stock has a β of 1.13 and an expected return of 12.1 percent. The risk-free asset earns a return of 5 percent.
If a portfolio of the two assets has a β of 2.26, what are the weights of the assets in the portfolio?
Question 7
4.2.e - using CAPM: A portfolio includes a variety of risky assets and risk-free asset. The sum of the value weights in the risky assets exceed 100 percent. The value weight in the risk-free asset is < 0.
What do these value weights mean for the value of the portfolio?
Question 8
4.3.a - using CAPM: A firm's stock is expected to pay a dividend of $3 per share in perpetuity.
Simple Simon Securities Analysts (SSSA) has provided you with a recommendation for this security. Their analysis suggests the firm will generate returns to stockholders of 16 percent. Thus, using the Dividend Discount Model (DDM), they estimate a share value of $18.75.
Using the Capital Asset Pricing Model (CAPM), you've estimated a β of 1.14 for this same firm. As a result of your research, you also know that expected returns from the market portfolio are 12 percent and the risk-free asset returns 5 percent.
Based on the CAPM approach, your estimated value for a share of the firm's stock is ________ the estimate provided by SSSA.
Note: Enough information is provided to compute a share value estimate, which can then be compared to that provided by SSSA.
Question 9
4.3.b - using CAPM: A firm's stock is expected to pay a dividend of $2 per share in perpetuity.
Simple Simon Securities Analysts (SSSA) has provided you with a recommendation for this security. Their analysis suggests the firm will generate returns to stockholders of 10 percent. Thus, using the Dividend Discount Model (DDM), they estimate a share price of $20.00.
Using the Capital Asset Pricing Model (CAPM), you've estimated a β of 0.85 for this same firm. As a result of your research, you also know that expected returns from the market portfolio are 12 percent and the risk-free asset returns 5 percent.
Based on the CAPM approach, your estimated value for a share of the firm's stock is ________ the estimate provided by SSSA.
Note: Enough information is provided to compute a share value estimate, which can then be compared to that provided by SSSA.
Question10 : Portfolio Expected Return
$20,000 is to be invested in a stock portfolio. Choices are stock X with an expected return of 12 percent and stock Y with an expected return of 8 percent. If the objective is to create a portfolio with an expected return of 11.5 percent, how much money should be invested in stock X? In stock Y?
Related Book For
Equity Asset Valuation
ISBN: 978-0470571439
2nd Edition
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
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