Roger is willing to invest in securities with above-average risk if he is rewarded for doing...

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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.

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