You ran a market model regression and estimated the beta of a labs preferred stock to be 0.7 with an associated standard error of 0.3. The expected return on the broad stock-market is 9% per year. The price of the risk-free asset, as measured by a 1-year treasury bill is $963.39.

In addition, the labs preferred stock is trading at $45 per share, and a quarterly dividend of 90 cents per share. The next dividend is to be paid in 3 months. the lab has 17,000 shares of preferred stock outstanding.

1.Assuming that beta-hcg is normally distributed, determine the 95% confidence interval for your estimate of beta-hat:

Group of answer choices The 95% Conf. interval for beta-hat is: ( 0.4000, 1.0000 ) The 95% Conf. interval for beta-hat is: ( 0.2065, 1.1935 ) The 95% Conf. interval for beta-hat is: ( 0.1120, 1.2880 ) The 95% Conf. interval for beta-hat is: ( 0.0000, 1.4000 ) None of

2.Find the E[r] of stock using the CAPM method. 4 Decimal points

3.Find the E[r] of stock by computing the stocks IRR, measured as an EAR (IRR) method. 4 decimal points

4.

Since you now have two estimates of the E[r] for the stock. Which one is likely to be more precise? Group of answer choices

The CAPM estimate could be more precise since beta-hat is typically measured with great precision, whereas preferred dividends are usually estimated with low precision.

The CAPM estimate is more precise since its the result of theory that has held up well for 60 years.

The IRR is could be more precise since beta-hat is measured with a lot of Imprecision, and preferred dividends are usually estimated with reasonable precision.

None of the above.

5.

Which 2 estimates should be used to compute WACC?

Group of answer choices

The IRR^EAR estimate

The CAPM estimate

Neither