Question
For the final answers, round your answer to the nearest 2 decimal places (3 decimals for the reward-to-risk ratio and 2 for the beta-coefficient). If
For the final answers, round your answer to the nearest 2 decimal places (3 decimals for the reward-to-risk ratio and 2 for the beta-coefficient). If you need to use a calculated number for further calculations, DO NOT round until after all calculations have been completed.
1. An analyst gathered the following information for a stock and market parameters:
- stock beta = 1.49;
- expected return on the Market = 12.8%;
- expected return on T-bills = 3.72%;
- current stock Price = $7.92;
- expected stock price in one year = $13.26;
- expected dividend payment next year = $1.51.
Calculate the required return for this stock. Please share your answer as a percentage rounded to 2 decimal places.
2. An analyst gathered the following information for a stock and market parameters:
- stock beta = 0.75;
- expected return on the Market = 8.32%;
- expected return on T-bills = 4.63%;
- current stock Price = $8.63;
- expected stock price in one year = $11.49;
- expected dividend payment next year = $3.48.
Calculate the expected return for this stock. Please share your answer as a percentage rounded to 2 decimal places.
3. The market risk premium for next period is 9.77% and the risk-free rate is 3.46%. Stock Z has a beta of 1.24 and an expected return of 9.64%. What is the market's reward-to-risk ratio?(For this problem, please list your answer in decimal format to 3 places. For example, if your answer is 12.3%, then enter it as 0.123).
Step by Step Solution
There are 3 Steps involved in it
Step: 1
1 To calculate the required return for the stock we can use the Capital Asset Pricing Model CAPM for...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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