Question
Suppose that the Treasury bill rate is 6% rather than the 3% value assumed in Table 12.1 and the expected return on the market is
Suppose that the Treasury bill rate is 6% rather than the 3% value assumed in Table 12.1 and the expected return on the market is 10%. Use the betas in that table to answer the following questions.
a. When you assume this higher risk-free interest rate, what is your assumption about the rate of return on the market portfolio?
b. Calculate the highest expected return for the stocks in Table 12.1. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
c. Calculate the lowest expected return for the stocks in Table 12.1. (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
d. Will Ford offer a higher or lower expected return if the interest rate is 6% rather than 3%?
e. Will Walmart offer a higher or lower expected return if the interest rate is 6% rather than 3%?
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