1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
saw5 [17]
2 years ago
9

Suppose the risk-free rate is 8%. The expected return on the market is 14%. Given this data, answer the following questions: If

a particular stock has a beta of .6, what is its expected return based on the CAPM? If another stock has an expected return of 20%, what must its beta be? If a stock has a beta of 1.3 and a current return of 17%, what can you say about the stock’s current price? What direction would you expect the stock price to move?
Business
1 answer:
Monica [59]2 years ago
7 0

Answer:

Explanation:

<em>a.)</em> Return of stock;

CAPM; r = risk-free +Beta(Market return - risk-free )

risk free rate = 8% or 0.08 as a decimal

Beta = 0.6

Market return = 14% or 0.14

CAPM; r = 0.08 +0.6(0.14 - 0.08)

return ;r = 0.116 or 11.6%

<em>b.)</em> If return (r) is 20%;

CAPM; r = risk-free +Beta(Market return - risk-free )

return( r ) = 20% or 0.20 as a decimal

risk free rate = 8% or 0.08 as a decimal

Market return = 14% or 0.14

Beta = ?

0.20 = 0.08 +Beta(0.14 - 0.08)

0.20 - 0.08 = 0.06Beta

0.12 = 0.06Beta

Divide both sides by 0.06

0.12/0.06 = Beta

Beta = 2

c.) If a stock has a beta of 1.3 and a current return of 17%, what can you say about the stock’s current price?

Using CAPM, the return should be;

CAPM; r = risk-free +Beta(Market return - risk-free )

r = 0.08 +1.3(0.14 - 0.08)

r = 0.158 or 15.8%

Since the current return of 17%, is lower than the CAPM return of 15.8%, it means that the current stock price is undervalued

Direction? The stock is expected to go up eventually since there will be a higher demand in the market due to the lower price than the actual intrinsic value.

You might be interested in
How does feedback of players influence the development of a game?
weeeeeb [17]

Answer:

<h2>Evaluative Feedback Increases.</h2>

Explanation:

While comparative feedback decreases future game play. Furthermore, negative feedback decreases players’ feeling of competence, but also increases immediate game play. Positive feedback, in contrast, satisfies competence and autonomy needs, thereby boosting intrinsic motivation.

7 0
2 years ago
A shelf in the Metro Department Store contains 95 colored ink cartridges for a popular ink-jet printer. Five of the cartridges a
mina [271]
<span>(7C3 * 73C0) / 80C3
 but that = (35 * 1) / 80C3
= 35 / 82160
 = .00043 

For B

</span><span>(7C1 * 73C2 + 7C2 * 73C1 + 7C3 * 73C0) / 80C3
 = 19964 / 82160 = .243
</span>hope it helps
7 0
3 years ago
Interview questions typically focus on all of the following except 
siniylev [52]
A. Age and Disability.

i think.
8 0
2 years ago
Beyond-the-Sea Corporation and Homeport Company make a deal for Homeport's products, via e-records. Under the UETA, an e-record
Gelneren [198K]

Answer: d. leaves the sender's control.

Explanation:

Under the Uniform Electronic Transaction Act(UETA), there are three conditions that must be met for an e-record to be considered sent and the relevant one here is that the e-record leaves the control of the sender.

It does this by entering into an information processing system that the sender does not control of.

The other requirements demand that the e-record be properly addressed to a system specified by the recipient and this system must be able to process said e-record.

4 0
3 years ago
Grossman lumber reported $102,000 net cash provided by its operating activities. if the company invests $4,000 in capital expend
sweet [91]

FCF is a measure of how much cash a business generates from operations, net of capital expenditures, which it can use for various purposes, such as reducing debt or paying out dividends. When calculating FCF, we take Cash provided by operating activities and subtract any capital expenditures. Grossman Lumber generated $102,000 in cash from operations, and invested 4,000 in capital expenditures, so its FCF is 102,000-4,000= $98,000. We are not concerned with dividends because dividends are not a capital expenditure. 

6 0
3 years ago
Other questions:
  • Year after she assisted them in making changes to an employee incentive plan, kara, an od consultant, is visiting thomas enginee
    15·1 answer
  • What are two kinds of open-ended credit?
    5·1 answer
  • During the year, Anna rented her vacation home for 87 days, used it personally for 13 days, and left it vacant for 265 days. She
    8·1 answer
  • Identify each of the following reconciling items as: An addition to the cash balance according to the bank statement. A deductio
    13·1 answer
  • When you introduce your product to a focus group or a small geographical location, which activity does it signify?
    6·1 answer
  • Which one of the following is not correct? For debt issued at par: interest expense reported on the income statement equals the
    6·1 answer
  • The WCU maintenance department used 850 brackets during the course of a year. The brackets are purchased from a supplier in Ashe
    9·1 answer
  • What is the difference between a price floor and a price ceiling?
    5·2 answers
  • The makers of Whirlpool washers and other electrical appliance manufacturers need to be concerned about the kind and availabilit
    7·1 answer
  • What Characteristics of the Confederate States of American made it a confederal government when compared to the government of th
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!