Roger is willing to invest in securities with above-average risk if he is rewarded for doing...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Roger is willing to invest in securities with above-average risk if he is rewarded for doing so. He has been following the stock of a company that he likes, but is concerned because the stock dropped 9% the last time the S&P 500 dropped 7%. Roger believes that an 11% return for the market next year would be good. The current market risk premium is 7.5% and the Treasury bill rate is 5.75%. The stock Roger has been following has the following characteristics: Standard deviation 18% Dividend yield 2.4% P/E ratio 17 P/E ratio relative to S&P 500 1.4 Beta 1.25 Using the CAPM formula, calculate the required rate of return for the stock and determine if the stock appears to meet Roger's criteria of investing in above-average-risk stocks only if he is rewarded for doing so. Roger is willing to invest in securities with above-average risk if he is rewarded for doing so. He has been following the stock of a company that he likes, but is concerned because the stock dropped 9% the last time the S&P 500 dropped 7%. Roger believes that an 11% return for the market next year would be good. The current market risk premium is 7.5% and the Treasury bill rate is 5.75%. The stock Roger has been following has the following characteristics: Standard deviation 18% Dividend yield 2.4% P/E ratio 17 P/E ratio relative to S&P 500 1.4 Beta 1.25 Using the CAPM formula, calculate the required rate of return for the stock and determine if the stock appears to meet Roger's criteria of investing in above-average-risk stocks only if he is rewarded for doing so.
Expert Answer:
Answer rating: 100% (QA)
APM Analysis for Rogers Investment Lets use the Capital Asset Pricing Model CAPM to determine the re... View the full answer
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
Posted Date:
Students also viewed these finance questions
-
Entrepreneurs are able to perceive opportunities for profits by _ _ _ _ _ _ _ _ . Question 2 options: ensuring they hire the right employees working hard to make success of the business being...
-
1 What are the main components of personal financial planning? Solve What is the purpose of a financial plan? Solve Identify some common actions taken to achieve financial goals. How does a job...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The given graph is a transformation of one of the six basic functions. Find an equation for the given graph. 10 'y -1 -2 -3 -5 -6 -7 -8 -9 -10 -15 -13 -9 -8 -7 -6 -5 4 3 -2 -1 0 1 2 3 45 -11
-
Does the number of years that a woman is on birth control (X) have an effect on how long it takes for her to become pregnant (Y) once she ceases to use it and tries to have children? A curious...
-
Find the rms electric and magnetic fields at a point 2.50 m from a lightbulb that radiates 115 W of light uniformly in all directions.
-
Attitudes toward products or companies often affect consumer behavior. The three components of an attitude are cognitive, affective, and behavioral. Briefly describe how a beer company might alter...
-
(a) Explain the similarities and differences between standards and budgets. (b) Contrast the accounting for standards and budgets.
-
7 Saved 10 points eBook The Molding Division of Cotwold Company manufactures a plastic casing used by the Assembly Division. This casing is also sold to external customers for $25 per unit. Variable...
-
Ace Companys income statements for the three years 2012, 2011, and 2010 are given below (all amounts in $ millions): 1. Other income (expense) comprised the following: 2. In 2012, cost of goods sold...
-
Colours Company 10% coupon bonds pay interest annually. When you bought one of these bonds, it had 20 years to maturity, and the appropriate discount rate was 8%. After one year, the discount rate on...
-
Discuss agency problems within business?What are 3 examples of how managers act in their own best interest and not in the stockholders' best interest?Also, what are 2 possible solutions to the...
-
Men Conference Ltd has an authorized share capital of 60,000,000 ordinary shares of Sh. 10 each and 500,000 shares of Sh. 50 each. The following trial balance of the company was extracted as at 31.12...
-
if you left 4,000 dollars on a deposit with a bank promising to pay you a percent compound annual rate of interest, then after 75 years your deposit would be worth approximately
-
Consider the following two way table Would buy Old 81 Young 60 what is the value of A Answer: Would not buy Total Sample proportion that would buy 919 100 A 40 100 0.7
-
1.) The Jampkins Company pays out 40% of its net income as dividends. It expects to earn $2 in net income; the stockholder equity of lampkins is $10. Based on these numbers, what is Jampkins expected...
-
Sheffield Itzek manufactures and sells homemade wine, and he wants to develop a standard cost per gallon. The following are required for production of a 50-gallon batch. 2,400 ounces of grape...
-
Suppose that you could invest in the following projects but have only $30,000 to invest. How would you make your decision and which projects would you invest in? Project Cost $ 8,000 11,000 9,000...
-
You are evaluating a new cookie-baking oven. The Cookie Munster costs \($90,000,\) has a seven-year life, and has an annual Operating Cash Flow (OCF), after tax, of -\($8,000\) per year. If your...
-
Joe Vida owns the Peace Barber simple . He employs five barbers and pays each a base rate of $1,200 per month. One of the barbers serves as the manage) and receives an extra $600 per month. In...
-
Suppose you are considering an investment that grew by 32 percent across a five-year holding period. If you wanted to state this rate of return as an effective annual rate (that is, with annual...
Study smarter with the SolutionInn App