Assume the real return in the economy is 4 percent. It is anticipated that the consumer price index will go from 200 to 210. Shares in common stock are assumed to have a required return one-third higher than the risk-free rate. Compute the required return on common stock.
Q: Suppose that the consensus forecast of security analysts of your favorite company is that earnings…
A: Share price =D1Ke-g where Ke = Cost of equity g = Growth rate D1 = Expenced dividend in next year
Q: A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per…
A: Formula for current price of the stock is: Current price = Expected dividend / (required return -…
Q: What is the expected rate of return and standard deviation on this stock?
A: The expected rate of return is a statistical degree used for studying the portfolio. It is the…
Q: Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock…
A: According to CAPM model: ke=rf+beta×market risk premiumwhere, rf=risk free rate according to gordon…
Q: A stock you are interested in is priced at $105, it's recent dividend was $5, if the market expects…
A: Market's expected return = [{D0*(1+g)}/P0]+g Where Recent dividend (D0) = $5 Current price (P0) =…
Q: The risk-free rate of interest, kRF, is 6 percent. The overall stock market has an expected return…
A: The required return on the stock can be calculated as per the CAPM equation
Q: BLC Industries is expected to pay a dividend of $1.50, and the dividend is expected to grow at a…
A: The conceptual formula used:
Q: what is inflation if the real risk-free rate is 7%?
A: Inflation refers to the state in which the prices of the goods and services increases as compare to…
Q: The required rate of return on the Cosmos Corporation's common stock is 10%, the current real rate…
A:
Q: Suppose the returns on a small stock are normally distributed. The historical average return is 18…
A: a) Z score = (expected return - actual return) / Standard Deviation Z score = (18%-12%)/6% Z score =…
Q: Stock A has a risk premium of 8.67 percent. If Treasury bills yield 2.3 percent, the required rate…
A: According to CAPM model: Rs=Rf+beta×Rm-Rf where, Rs= required return of stock Rf = Risk free rate…
Q: Diddy Corp. stock has a beta of 1.1, the current risk-free rate is 5 percent, and the expected…
A: The cost of equity can be calculated as per CAPM equation
Q: You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also…
A: Using CAPM
Q: A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per…
A: The dividend discount model is the model of stock valuation that assumes that the stock price of a…
Q: Assume that the dividend payout ratio will be 75 percent when the rate on long-term government bonds…
A: Given, Payout ratio = 75% or 0.75 Return on equity = 12% Required rate of return = 15%
Q: Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock…
A: Capital Asset Pricing Model determines the rate of return of a certain asset based on the…
Q: hat is your expectation of the market P/E ratio?
A: P/E Ratio: It is the ratio of the firm's share price to its EPS (earnings per share). A higher P/E…
Q: What is the price of a share of stock if the beta is 1.5, its next dividend is projected to be…
A: In the given question we need to calculate the price of a share. First we need to calculate the cost…
Q: Suppose that the consensus forecast of security analysts of your favorite company is that earnings…
A: The question is based on the concept of Financial analysis.
Q: What should be the market price of the stock? $ If the current market price of the stock is…
A: Share Price: The price of a share is an indication of its present value to buyers and sellers.…
Q: The risk-free rate of return, rRF, is 11 percent; the required rate of return on the market, rM, 14…
A: This question require us to compute the value of stock. As per Dividend Discount model: Value of…
Q: Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 8 percent. Stock…
A: Risk free rate = 4.5% Market risk premium = 8% The beta of stock U = 1.3 The selling price of…
Q: Suppose that the consensus forecast of security analysts of your favorite company is that earnings…
A: Return on equity is a measure of financial performance calculated by dividing net income by…
Q: Linke Motors has a beta of 1.30, the T-bill rate is 3.00%, and the T-bond rate is 6.5%. The annual…
A: according to SML model firms required return =rf+beta ×rm-rf where, rf= risk free rate rm= market…
Q: If the risk free rate is 4 %, the expected return on the market portfolio is 1296 and the beta of…
A: Financial management consists of directing, planning, organizing and controlling of financial…
Q: You recently purchased a stock that is expected to earn 19 percent in a booming economy, 8 percent…
A: Probability Return on stock Boom 20% 19.00% Normal 70% 8.00% Recession 10% -28.00% 100%…
Q: You recently purchased a stock that is expected to earn 19 percent in a booming economy, 8 percent…
A: Excel Spreadsheet: Excel Workings:
Q: A stock analyst at JP Dealers believes that a stock will earn the following returns next period…
A: To Find: Expected return
Q: You recently purchased a stock that is expected to earn 33 percent in a booming economy, 13 percent…
A: Excel Spreadsheet: Excel Workings:
Q: You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also…
A: If Capital Asset Pricing Model hold good Required Return = Risk Free rate + (market Return - Risk…
Q: - Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills =…
A: Expected rate of return is the profit or loss on the investor that is assumed to be anticipated by…
Q: The stock of a given corporation has a 25% chance of producing a 16% return, a 50% chance of…
A:
Q: The common stock of Flavorful Teas has an expected return of 14.82 percent The return on the market…
A: GIVEN, RE= 14.82% RM= 13% RF= 3.9%
Q: A common stock is expected that the earnings and dividends will grow at a rate of 25% for the next 4…
A: Growth rate up to 4 years = 25% Growth rate after 4 years = 0% Current dividend (D0) = P 1.25 Beta =…
Q: A Company has a beta of 1.75. By what percent will the required rate of return on the stock increase…
A: % increase in required rate of return on stock = Beta* % increase in market return
Q: The common stock of Peeta Inc. has an expected return of 15.0%, the risk-free rate is 3.20%, and the…
A: Calculate the beta as follows:
Q: Assume the return on large-company stocks is currently 11.5 percent. The risk premium on…
A: Return means get something form the investment. Return is directly (positively) relates with the…
Q: Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock…
A: In the given question we required to calculate the price of Stock U using dividend discount model…
Q: You recently purchased a stock that is expected to earn 25 percent in a booming economy, 10 percent…
A: Probability Return on stock Boom 10% 25.00% Normal 75% 10.00% Recession (100%-(10%+75%) 15%…
Q: Diddy Corp. stock has a beta of 1.3, the current risk-free rate is 3 percent, and the expected…
A: The Capital Asset Pricing Model (CAPM) refers to the model which tells us how the financial markets…
Q: Diddy Corp. stock has a beta of 1.2, the current risk-free rate is 5 percent, and the expected…
A: Cost of equity = Risk free rate + beta(market return - risk free rate) Cost of equity = 5% +…
Q: What is the price of the stock today?
A: Share price: It represents the current worth to the sellers and buyers of stock and can be…
Q: The risk-free rate of return is 1 percent, and the expected return on the market is 7.1 percent.…
A: Since you have posted a question with multiple sub-parts, we will solve the first three subparts for…
Q: suppose that a stock in general diversified industries has a beta of 1.6. the market risk premium is…
A: Calculation of the RR (required return) is shown below:
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- An 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?Assume that the risk-free rate is 7.5% and the market risk premium is 5%. What is the required return for the overall stock market? Round your answer to one decimal place.Assume that the risk-free rate is 7.5% and the market risk premium is 5%. What is the required return for the overall stock market? Round your answer to one decimal place. % What is the required rate of return on a stock with a beta of 0.5? Round your answer to one decimal place.
- The current risk-free rate of return, rRF, is 2 percent and the market risk premium, RPM, is 8 percent. If the beta coefficient associated with a firm's stock is 1.4, what should be the stock's required rate of return? Round your answer to one decimal place. _______ ´%Assume that the risk-free and rate is 5.50% and the market risk premium is 7.75%. What is the expected return for the overall stock market (rm)?Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a share of common stock. Your research shows the following: Beta = βi = 1.54 Risk free rate = Rf = 2.5% per year Market return = E(RM) = 6.5% per year Based on this information, answer the following: A. Based on the beta, how does the stock's risk compare to the market overall? On what do you base your answer? B. Based on the beta, how would you expect the stock's returns to react to a decrease in returns in the market overall? Why? C. According to the CAPM and the information given above, what is the expected return E(Ri) for this stock? D. If the required rate of return on this stock were 7% per year, would you invest? Why or why not?
- Suppose that Do = $1.00 and the stock's last closing price is $15.85. It is expected that earnings and dividends will grow at a constant rate of g = 3.50% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 10.00%. The dividend received in period 1 is D1 = $1.00 × (1+0.0350) = $1.04 and the estimated intrinsic value in the same period is based on the D2 constant growth model: P₁: TS-8 Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Activity Frame Dividend Price PV t 10.00% Period (Dollars) (Dollars) (Dollars) 0 $1.00 $15.85 1 1.03 16.46 $0.94 2 1.07 17.08 $0.97 3 1.11 17.69 $1.01 4 1.15 18.31 $0.97 5 1.19 18.92 $0.94 The dividend yield for period 1 is and it will The capital gain yield expected during period 1 is and it will each period. each period. If it is…. Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills = 6% dividend = 10 per 100 value State of market Probability Ending price Вoom 0.3 140 Normal growth 0.4 110 Recession 80 0.3 Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment, and standard deviation of excess return.You are thinking of buying a stock priced at $98 per share. Assume that the risk-free rate is about 4.7% and the market risk premium is 5.5%. If you think the stock will rise to $122 per share by the end of the year, at which time it will pay a $1.74 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.)
- You expect the risk-free rate (RFR) to be 3 percent and the market return to be 10 percent. You also have the following information about three stocks. STOCK Coca-Cola BETA 1.7 CURRENT PRICE 52.75 EXPECTED PRICE 57.00 EXPECTED DIVIDEND 1.11 What is the required return for the stock?Suppose that Do = $1.00 and the stock's last closing price is $26.25. It is expected that earnings and dividends will grow at a constant rate of g = 5.00% per year and that the stock's price will grow at this same rate. Let us assume that the stock is fairly priced, that is, it is in equilibrium, and the most appropriate required rate of return is rs = 9.00%. The dividend received in period 1 is D₁ = $1.00 × (1+0.0500) = $1.05 and the estimated intrinsic value in the same period is based on the constant growth model: P₁ = P² Using the same logic, compute the dividends, prices, and the present value of each of the dividends at the end of each period. Price (Dollars) $26.25 PV of dividend at 9.00% (Dollars) Dividend Period (Dollars) 0 $1.00 1.05 1 2 3 4 5 The dividend yield for period 1 is The capital gain yield expected during period 1 is 4.00% O 5.00% and it will 9.00% If it is forecasted that the total return equals 9.00% for the next 5 years, what is the forecasted total return out…A firm's common stock has just paid a $3.00 dividend (Do), which is expected to grow at a constant rate of 6.0 percent each year. The beta of this stock is 1.30, the risk-free rate is 4.0 percent, and the expected return on the market is 10.0 percent. Determine how much you should be willing to pay (the intrinsic value) for this stock today. Assume that CAPM is the correct model for required returns. 536.55 $54.83 $63.97 $73:10 545.69
