The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using

Question:

The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model:

a. Draw a graph similar to Figure showing how the expected return varies with beta.

b. What is the risk premium on the market?

c. What is the required return on an investment with a beta of 1.5?

d. If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV?

e. If the market expects a return of 11.2% from stock X, what is itsbeta?

The Treasury bill rate is 4%, and the expected return

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

See More Books

Question Posted: Dec 31, 2012 10:47 AM

See More Questions

The expected return on the market portfolio is 15 percent, and the return on the risk-free security is 5 percent. What is the expected return on a portfolio with a beta equal to 0.5?
M. Grandet has invested 60 percent of his money in share A and the remainder in share B. He assesses their prospects as follows: a. What are the expected return and standard deviation of returns on...
Draw the security market line when the Treasury bill rate is 4% and the market risk premium is 7%. What are the project costs of capital for new ventures with betas of .75 and 1.75? Which of the...
Assume there are 3 types of squirrels in the world (red, black, grey). Assume 40% of squirrels are black, 40% of squirrels are grey and 20% are red. Assume 3% of red squirrels are in Ontario, 2% of...
The data from Exercise 1 were gathered again the next day. After the experiment had run 24 hours, the y-values had dropped by nearly 20%. Subtract 20 from each y-value and create a scatter plot of a....
Why do we square the deviation from the mean before adding them to compute the variance?
Small and medium-sized companies are often eager to hire people with about five years of experience working in a large, successful bureaucratic firm like IBM or General Foods. What might be the...
The costs per equivalent unit of direct materials and conversion in the Rolling Department of Keystone Steel Company are $ 60 and $ 10, respectively. The equivalent units to be assigned costs are as...
if a product in question has an insignificant cost, it might not be worth the trouble to trace the cost of that item to a particular cost center, and that item would be considered indirect. If the...
Locate the court case Ellis v. Jarvis et al., 117 AFTR 2d 2016-1932. Using only the head notes, answer the following questions: a. What issue(s) did the court address? b. What was the ruling of the...
Look back at Table. a. What is the beta of a portfolio that has 40% invested in Disney and 60% in Exxon Mobil? b. Would you invest in this portfolio if you had no superior information about the...
Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows: Years Cash Flow ($ millions) 0 .................................-100 110...
For each set of sample outcomes below, construct the 99% confidence interval for estimating Pu. a. P s = .14 N = 100 b. P s = .37 N = 522 c. P s = .79 N = 121 d. P s = .43 N = 1,049 e. Ps = .40 N=...
Recall from Case 1.2 that Auto Concepts is a new division of a large automobile manufacturer that has been slowly losing market share to its competitors. Auto Concepts was created to reclaim the...
(a) Draw a simplified ray diagram showing the three principal rays for an object located inside the focal length of a diverging lens. $(b)$ Is the image real or virtual? (c) Is it upright or...
Show that the ray exiting the block in Figure P33.53 is parallel to the ray entering the block. Data from Figure P33.53
The element is subjected to the state of stress shown. If the material is machine steel having a yield stress of $\sigma_{Y}=750 \mathrm{MPa}$, determine the factor of safety with respect to...
Determine the vertical displacement of the ring at point $B$. $E I$ is constant. B P A
Rowland Company was organized on January 1, 2010. At the end of the first year of operations, December 31, 2010, the bookkeeper prepared the following trial balances (amounts in thousands of...
Which of the following statements is false? a. Capital leases are not commonly reported in a Capital Projects Fund. b. A governmental entity may report a Capital Project Fund in one year but not the...
If a plaintiff is injured because of the landlords failure to complete the repairs he started, the plaintiff can sue both the landlord and the tenant. True False
Explain the difference between compounding period and compounding frequency.
Explain the difference between nominal rate of interest and periodic rate of interest.
Determine the periodic interest rate for a nominal interest rate of: a. 8% compounded semiannually. b. 8% compounded monthly.
You plan to buy a house for $325,000 today. If the house is expected to appreciate in value 8% each year, what will its value be seven years from now?
A designated beneficiary of an ABLE account must be ___________ in order to meet the special rules that apply to the increased contribution limit authorized under the Tax Cuts and Jobs Act? a. an...
Stans wholesale buys canned tomatoes from canneries and sells them to retail markets Stan uses the perpetual inventory

The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using

Question:

Expected return on investment Security market line Market portfolio Treasury bills beta (β) 1.0

Step by Step Answer:

a b Market risk premium r m r f 012 004 008 80 c Use the s...View the full answer

Principles of Corporate Finance

Related Video

Students also viewed these Corporate Finance questions