My broker just called and offered to sell me a stock with an expected return of 30% annually. If the risk-free rate is 2% and the expected return on the market is 16%, then how much riskier is this stock than the average stock in the market? Select one: O a. 1.0x (same risk) o b. 2.0x (twice as risky) O c.2.27x O d. 3.0x O e. None of the above.
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- My broker just called and offered to sell me a stock with an expected return of 30% annually. If the risk-free rate is 2% and the expected return on the market is 16%, then how much riskier is this stock than the average stock in the market? Select one: O a. 1.0x (same risk) O b. 2.0x (twice as risky) O c. 2.27x O d. 3.0x Oe. None of the above.Suppose you observe the following situation: Security Ruby Pearl Expected Return 14.9% 21.0% Beta 0.70 2.13 A). If these two securities are correctly priced, calculate the risk-free rate. Round your answer to 4 decimal points. B). If these two securities are correctly priced, find the market risk premium (using the findings of Requirement-A). Round your answer to 4 decimal points. C). If the current market data shows that the risk-free rate is 3.52 percent, are these securities fairly priced? Comment on your answer. Round your answers to 4 decimal points. D). Calculate the expected return and beta of an equally weighted portfolio of these two securities. Round your answers to 3 decimal points.A) What expected return should an investor expect from investments in common stock? You are given the following information: Risk free rate of return = 4%; market risk premium = 11%; Beta of the stock (assume CAPM holds) = 0.72. B) Stock A with beta of 0.8 offers a 11% return while stock B with a beta of 1.2 offers a 15% return. What is the risk-free rate? What is the common market return? Assume CAPM holds.
- Question: You are an investment advisor. You currently own two stocks, A and B, with the following characteristics: Expected Return Beta X 10% 0.8 Y 16% 1.5 The current risk-free rate is 2 percent, and the expected return on the market is 12 percent. How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)? Show your calculations (and explain). Stock A: Stock B:You are trying to decide whether to invest in one or both of two different stocks. The marketrisk premium and risk-free rate are 6 percent and 4 percent respectively.Beta Expected Return(%)Stock 1 beta 0.8 % expected return7.0Stock 2 beta 1.2 %expected return 9.5Use your knowledge of the CAPM and the SML which and determinewhether you should invest in either, one, or both of these stocks. Provide all workings← You are thinking of buying a stock priced at $109.31 per share. Assume that the risk-free rate is about 4.03% and the market risk premium is 6.48%. If you think the stock will rise to $118.76 per share by the end of the year, at which time it will pay a $3.48 dividend, what beta would it need to have for this expectation to be consistent with the CAPM? The beta is (Round to two decimal places.) ...
- 4. You are an investment advisor. You currently own two stocks, A and B, with the following characteristics: Expected Return Beta X Y 10% 0.8 16% 1.5 The current risk-free rate is 2 percent, and the expected return on the market is 12 percent. How would you change your holdings of the two stocks (i.e., for each, would you sell or buy more)? Show your calculations (and explain).Please show working Please answer ALL OF QUESTIONS 1 AND 2 1. Assume that the risk-free rate is 3.5% and the market risk premium is 8%. a. What is the required return for the overall stock market? Round your answer to two decimal places. __________ % b. What is the required rate of return on a stock with a beta of 2.4? Round your answer to two decimal places. __________ % 2. An individual has $50,000 invested in a stock with a beta of 0.8 and another $55,000 invested in a stock with a beta of 2.0. If these are the only two investments in her portfolio, what is her portfolio's beta? Do not round intermediate calculations. Round your answer to two decimal places._______Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 6 % Interest rates (R) 2 Consumer confidence (C) 4 The return on a particular stock is generated according to the following equation: r = 15% + 1.0I + 0.5R + 0.75C + ea-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)
- The stock of Yakir Development has a beta of 1.31. The risk-free rate of return is 1.5 percent and the market rate of return is 8 percent. What is the risk premium on this stock? O 8.5% O 0.9% O 6.5% O 6.7% A Moving to another question will save this response. « < Question 23 of 30An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?Stock A's stock has a beta of 1.30, and its required return is 10.25%. Stock B's beta is 0.80. If the risk-free rate is 4.75%, what is the required rate of return on B's stock? (Hint: First find the market risk premium.) Select the correct answer. a. 8.07% b. 8.19% c. 8.13% d. 8.25% e. 8.31%