Question: You are analyzing a stock. Researching its historical beta, you find high values ranging between 1.7-1.8. When you regress the stock's historical monthly returns on

You are analyzing a stock. Researching its historical beta, you find high values ranging between 1.7-1.8. When you regress the stock's historical monthly returns on the S&P 500 index you estimate the stock's beta at 1.7. Should you consider making any adjustments to the stock's beta when you estimate its CAPM required return?

Step by Step Solution

★★★★★

3.39 Rating (158 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Research shows that for many stocks unusually high above 13 or low below 07 betas tend ... View full answer

Question Has Been Solved by an Expert!

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

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

502-B-A-E (1744).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

In 2020, American Airlines Group Inc., a publicly owned company, reported operating cash flows of negative $6.5 billion, and desperately needed additional capital for the company to continue...

You are analyzing a stock that has a beta of 1.2. The risk-free rate is 5% and you estimate the market risk premium to be 6%. If you expect the stock to have a return of 11% over the next year,...

You are analyzing a new security that has been promoted as equity, with the following features: The dividend on the security is fixed in dollar terms for the life of the security, which is 20 years....

You are analyzing a tariff for extracting foreign monopoly profit. Will the transfer of profit become greater or less, for a given tariff amount, when the demand curve facing the foreign monopolist...

Can someone help me with my assignment? I need it by Monday 2pm EDT. File is attached. Thanks! ***NOTES FROM PROFESSOR*** Dear Students, The iShares 13 Year Treasury Bond ETF (SHY)is a short term...

Questions for Coca Cola Case Can you find an error in equation 1 Look at Figure 1, how well does the regression line predict the actual results? What does the R2 in the regression equation (table1)...

Please see attachment and following the intructions The objectives of this exercise: 1. To access and download stock and index price data from yahoo.com. 2. To discern the difference between a...

Only need the excel section completed. I will do the written report stuff. Model is the format I want it complete in. Thanks Date 6/1/2010 7/1/2010 8/1/2010 9/1/2010 10/1/2010 11/1/2010 12/1/2010...

please do full thing in excel and make doc accessible! Safari File Edit View History Bookmarks Window Help C $ 7% Tue 3:56 PM Q DE . . . A compass2g.illinois.edu C O CAPM Stock Valuation.....

F igure 2 P r oject Net Cash F l ows f o r Alba Year P r oject A P r oject B 1 -900 950 2 200 950 3 900 950 4 1800 950 5 2500 950 6 2500 950 7 1800 950 8 1200 950 9 800 950 10 200 950 Since David is...

Date Open High Low Close* Adj Close** Volume Mar 01, 2018 2,715.22 2,801.90 2,585.89 2,640.87 2,640.87 76,349,800,000 Feb 01, 2018 2,816.45 2,835.96 2,532.69 2,713.83 2,713.83 79,579,410,000 Jan 01,...

Solve the Following: If X ~ N3 (, 2) where u = [1-1 2] and = 40 0-1 05 0 -1 0 2 Which of the following random vectors are independent? (i) X and X (ii) X and X3 (iii) X2 and X; (iv) X X3 and X2

Sarah's Organic Soap Company makes organic liquid soap. One of the raw materials for her soaps is organic palm oil. She needs 500 kilograms of palm oil per day on average. The supplier charges a $54...

Match the inventory valuation methods with their descriptions. specific identification first - in - first out ( FIFO ) last - in - first - out ( LIFO ) weighted average

1. The Balance sheet and Income statement per U.S. GAAP and IFRS need to provide comparative information to the users of these financial statements. Per US GAAP, the Income statement needs to...

Discuss the importance of properly accounting for pensions and benefits both from a GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Statements) perspective.

Write a paper on the importance of properly accounting for pensions and benefits both from a GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Statements)...

Javlin Farms purchased three nos tractors for $25.000 each. Javlin expects Me tractors to have a useful life of 6 years and a residual value of $5.000. One of the tractors has not performed as...

Legend: Table: By using the Legend given below and information given in the Table, Early Start (ES) Late Start (LS) Activity Name A B C D E F G H 1 J K Slack Activity Name Duration Planned Duration...

What facilities are required (e.g. operations, distribution).

Journal entries for dividend. Prepare journal entries for the following transactions of Watt Corporation. The firm has 20,000 shares of $15 par value common stock outstanding on January 1, 2008. The...

Journal entries for treasury stock transactions. Prepare journal entries under the cost method to record the following treasury stock transactions of Danos Corporation. a. Purchases 10,000 shares of...

Journal entries for treasury stock transactions. Prepare journal entries under the cost method to record the following treasury stock transactions of Melissa Corporation. a. Purchases 10,000 shares...

Suppose a firm has 15.8 million shares of common stock outstanding and eight candidates are up for election to four seats on the board of directors. a. If the firm uses cumulative voting to elect its...

QUESTION 18 Rolecksi's Watch company has ROE of 21.08%. The ROA is 12.36%. What is the firm's debt ratio? 512 386 1328 0.414 none of these

Steinberg Corporation and Dietrich Corporation are identical firms except that Dietrich is more levered. Both companies will remain in business for one more year. The companies' economists agree that...