Question
1. A stock has an historical average return of 8.8%, and standard deviation of 6.8%. The market is expected to earn a 9.5% rate of
1. A stock has an historical average return of 8.8%, and standard deviation of 6.8%. The market is expected to earn a 9.5% rate of return, and has a standard deviation of 5.9%. The stock's beta coefficient is 1.25, and the risk free rate of return is 2.5%. What is the required return for this stock investment using the capital asset pricing model?
2. A five-year corporate bond with a face value of $10,000 pays interest at a coupon rate of 4.0%. The required return for investing in this bond is 5.0%. At what market price will the bond sell?
3. A stock pays a current dividend of $2.50 per share. The dividend is expected to grow at a 3.0% rate, and investors require a return of 10.0% for this stock. At what price will the stock sell?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started