Question
1. What is the expected rate of return for the hypothetical stock, X? X is in the consumer discretionary sector (CDS) Standard Deviation of CDS
1. What is the expected rate of return for the hypothetical stock, X?
X is in the consumer discretionary sector (CDS)
Standard Deviation of CDS = 16%
Standard Deviation of the market = 20%
Covariance of CDS and The Market = .038
Historical Average Return of CDS= 18%
Historical Geometric Return of CDS = 17.5%
Historical Average Risk Free Rate = 3%
Historical Geometric Mean of Risk Free Rate = 2.97%
Historical Average Market Return = 20%
Historical Geometric Mean of Market Return = 19%
Corporate Tax Rate of 21%
Personal Income Tax Rate of 35%
Book Value of Assets for X = $50BN
Book Value of Debt for X = $10BN
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