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Elina [12.6K]
3 years ago
7

The stock of Big Joe's has a beta of 1.40 and an expected return of 12.10 percent. The risk-free rate of return is 4.6 percent.

What is the expected return on the market?
Business
1 answer:
leonid [27]3 years ago
7 0

Answer:

5.403%

Explanation:

Calculation for the expected return on the market

Using this formula

Expected return =(Expected return-Risk-free rate of return)/Stock beta +Risk-free rate of return

Where,

Expected return=12.10%

Risk-free rate of return=4.6%

Stock beta =1.40%

Let plug in the formula

Expected return =(0.121-0.046)/0.014+0.046

Expected return =0.075/0.014+0.046

Expected return=5.357+0.046

Expected return =5.403%

Therefore the expected return on the market will be =5.403

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Answer:

Discounted payback period = 1.89 years

Explanation:

If Initial cost is $5,200

Year  Cash flow   Present value   Present value      Discounted

                                 at 11%                                       Cumulative cash flow

0          -5,200             1                      -5,200              -5,200

1            2,800           0.9009             2,523               -2,677

2           3,700           0.811                  3,003                326

3            5,100           0.73126              3,729                4,055

4            4,300          0.6587               2,833                6,887

Discounted payback period = 1 + (2,667/3003)

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Working

PV= (1+i)^-n

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