Question
Suppose the required rate of return on a stock with Beta 1.2 is 18 per cent and risk-free rate is 6 per cent According to
Suppose the required rate of return on a stock with Beta 1.2 is 18 per cent and risk-free rate is 6 per cent According to the CAPM
a)What is the expected rate of return on the market portfolio?
b)What is the expected return of a zero-beta security?
c)Suppose you select Stock ABC for Rs.50 and the stock is expected to pay a dividend of Rs.2 next year and is expected to fetch Rs.53 when sold The stock has a Beta of -0.5 Is the stock fairly priced overvalued or undervalued?
d)A stock XYZ has Beta 1.5 and one year from now is expected to yield dividend income of Rs.6. What is the fair price stock XYZ if its growth rate is 10 per cent?
Note: Kindly solve using formulas and not on excel.
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