Question

Finance homework
Question 1.A stock with a beta has an expected rate of return of

160000  If the market return this year turns out to be 10 percentage points below expectations, what is your best guess as to the return n the stock

Q.2.

The risk free rate is 3% and the expected rate of return on the market portfolio is 8%

a. Calculate the required rate of return n a security with a beta 2.16(Do not round intermediate calculations. Enter your answer as a % rounded to 2 decimal places)

If the security is expected of return is 13%, is it over priced?

Q3.

A share of stock with a beta of 0.65 now sells for $40. Investors expect the stock to pay a year-end dividend of 042. The T-bill rate is 6% and the market risk premium is 9%. If the stock is perceived to be fairly priced today what must be investors’ expectation of the price of the stock at the of the year? (Do not round intermediate calculations. Round your answer 2 decimal places)

Q4.

A share of stock with a beta of 0.77 now sells for $50. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 4% and the market risk premium is 8%.

a. Suppose investors believe the stock will sell for %52 at year-end . Calculate the opportunity cost of capital. is the stock good or bad? what will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a whole percentage rounded to 2 decimal places)

Opportunity of capital ?

The stock is …………….. buy and investors……………..?

b. At what price will the stock reach an ” equilibrium ” at which it is perceived as fairly priced today? ( Do not round intermediate calculations. Round your answer to 2 decimal places)

Q5.

We do Bankruptcies is a law firm that specializes in providing advice to firms in financial distress. It prospers in recessions when other firms are struggling. Consequently, its beta is negative, -0.3 .

a. If the interest on T-Bills is 4% and the expected return on the market portfolio is 14% , what is the expected return shares of the law firm according CAPM?

expected return………………?

B. Suppose you invested 70% of  your wealth in the market portfolio and remainder of your wealth in the shares in the law firm. What would be the beta of your portfolio?

(Do not round intermediate calculations. round your answer to 2 decimal places)

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