Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Suppose that the Treasury bill rate is 6% rather than 4%, as we assumed in Table 121, and the expected return on the market is
Suppose that the Treasury bill rate is 6% rather than 4%, as we assumed in Table 121, and the expected return on the market is 12% Use the betas in that table to answer the following questions. a. When you assume this higher risk-free interest rate, what makes sense for how you should modify your assumption about the rate of return on the market portfolio? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) b. Recalculate the expected return on the stocks in Table 12.1. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. Suppose now that you continued to assume that the expected return on the market remained at 12%. Now what would be the expected returns on each stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) d. Ford offer a higher or lower expected return of the interest rate is 6% rather than 4%? e. Walmart offer a higher or lower expected return if the interest rate is 6% rather than 4%? b. Market return Expected return Expected return Ford's expected return Walmart's expected return % % d. e. Ticker Beta Company U.S. Steel Marathon Oil 3.01 MRO 2.39 AMZN Amazon 1.47 DIS 1.39 Disney Ford F 1.26 BA 1.24 Boeing Intel INTC 1.07 GE GE 1.06 PFE Pfizer 1.02 IBM IBM 0.94 GOOG 0.94 Alphabet Union Pacific UNP 0.90 0.82 XOM ExxonMobil SBUX 0.75 Starbucks Coca-Cola KO 0.70 0.68 MCD CPB McDonald's Campbell Soup Walmart 0.40 WMT 0.37 PCG 0.15 Pacific Gas & Electric Newmont Mining NEM 0.10 Ticker Beta Company U.S. Steel Marathon Oil 3.01 MRO AMZN 2.39 1.47 Amazon DIS 1.39 Disney Ford F 1.26 1.24 BA INTC Boeing Intel 1.07 GE GE 1.06 PFE Pfizer 1.02 IBM IBM 0.94 GOOG 0.94 UNP Alphabet Union Pacific ExxonMobil 0.90 XOM 0.82 SBUX Starbucks Coca-Cola KO 0.75 0.70 0.68 0.40 MCD CPB WMT McDonald's Campbell Soup Walmart Pacific Gas & Electric Newmont Mining 0.37 PCG 0.15 NEM 0.10
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