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Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is
| Anna is a Vice President at the J Corporation. The company is considering | |||||||||||
| investing in a new factory and Anna must decide whether it is a feasible | |||||||||||
| project. In order to assess the viability of the project, Anna must first calculate | |||||||||||
| the rate of return that equity holders expect from the company stock. The | |||||||||||
| annual returns for J Corp. and for a market index are given below. Currently, | |||||||||||
| the risk-free rate of return is | 1.2% | and the market risk-premium is | 3.1% | . | |||||||
| a) What is the beta of J Corp.'s stock? | Enter Answer | ||||||||||
| (1 Mark)(Round your answer to two decimal places) | |||||||||||
| b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year? | Enter Answer | ||||||||||
| (2 Marks)(Round your answer to one one-hundreth of a percent) | |||||||||||
| Year | J Corp. Return (%) | Market Return (%) | Enter your Final Answer Here | ||||||||
| 1 | -12.38 | -6.10 | |||||||||
| 2 | 17.44 | 8.81 | |||||||||
| 3 | 24.14 | 12.16 | |||||||||
| 4 | 28.14 | 14.16 | |||||||||
| 5 | -32.98 | -16.40 | |||||||||
| 6 | 31.46 | 15.82 | |||||||||
| 7 | 9.26 | 4.72 | |||||||||
| 8 | 25.94 | 13.06 | |||||||||
| 9 | 18.02 | 9.10 | |||||||||
| 10 | 19.44 | 9.81 | |||||||||
| 11 | -10.96 | -5.39 | |||||||||
| 12 | -16.98 | -8.40 | |||||||||
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Market Regulations And Finance
Authors: Ratan Khasnabis, Indrani Chakraborty
2014th Edition
8132217942, 978-8132217947
