A firm has a Beta of 1.6. The market return is measured as 8.5% and the risk free rate is 1.75% Is this firm's stock more or less volatile/riskythan the overall stock market? Group of answer choices This firm is MORE risky than the average firm. This firm is LESS risky than theaverage firm. This firm has SIMILAR risk to the average firm. There is not enough information to tell.

Beta measures the sensitivity of a stock's returns to changes in the overall market returns. A beta…

Answered: A firm has a Beta of 1.6. The market…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter25: Portfolio Theory And Asset Pricing Models

Section: Chapter Questions

Problem 3MC

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3. Why coefficient of variation is a better measure of risk than standard deviation? 4. What is agency problem and what are the solutions to this problem? 5. What are the different methods to measure the cost of equity for a firm? 6. What is Security Market line with reference to CAPM 7. Write the formula to measure Risk of portfolio comprising of 3 stocks 8. What is Beta in CAPM and what does it measure.
What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk - free rate of return is 7.0 percent and the expected return on the market is 18.0 percent? Select one: а. 1.30 b. None of these с. 1.57 D. 0.79
Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of the following is correct given that betas of stocks A and B are correct? a. Stock B is also fairly priced b. The expected return on stock B is too high c. The expected return on stock A is too high d. The price of stock B is too high e. The price of stock A is too high. 9) Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betas greater than 1.5 e. A portfolio made up entirely of treasury bills
You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that the return on the market portfolio is 8.52%, and the risk-free rate is 3%. What is the cost of equity of firm A? Group of answer choices There is not enough information to answer this question. 10.17% 11.74% 14.21% 12.11%
Based on the CAPM, Jensen's Alpha of a firm a) equals zero if the firm's stock returns have underperformed as compared to the market after adjusting for its beta risk. b) is positive if the firm's stock returns have overperformed as compared to the market after adjusting for its beta risk. c) is negative if the firm's stock returns have overperformed as compared to the market after adjusting for its beta risk. d) equals one if the firm's stock returns have underperformed as compared to the market after adjusting for its beta risk.
Stock A has a beta = 0.8, while Stock B has a beta = 1.6. Which of the following statements is CORRECT? a. If the marginal investor becomes more risk averse, the required return on Stock B will increase by more than the required return on Stock A. b. An equally weighted portfolio of Stocks A and B will have a beta lower than 1.2. c. If the marginal investor becomes more risk averse, the required return on Stock A will increase by more than the required return on Stock B. d. If the risk-free rate increases but the market risk premium remains constant, the required return on Stock A will increase by more than that on Stock B. e. Stock B's required return is double that of Stock A's.
(Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on the risk (as measured by the standard deviation) and return? Common Stock A Probability 0.35 0.30 0.35 Return 13% 14% 18% Common Stock B Return - 6% 7% 16% 20% Probability 0.15 0.35 0.35 0.15 (Click on the icon in order to copy its contents into a spreadsheet.)
Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of .6. Which of the following statements is most accurate? The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc. The stock of Kaskin, Inc., has more total risk than the stock of Quinn, Inc. The stock of Quinn, Inc., has more systemic risk than that of Kaskin, Inc.
Mulherin's stock has a beta of 1.34, its required return is 8.33%, and the risk-free rate is 2.30%. What is the required rate of return on the market? (Hint: First find the market risk premium.) Do not round your intermediate calculations. Please explain process and show calculations.
What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk-free rate of return is 7.0 percent and the expected return on the market is 18.0 percent? Select one: a. None of these O b. 0.79 O c. 1.30 O d. 1.57
You have been provided the following information as part of a consultation query:The risk free rate is 3.2%The market risk premium (rM - rRF) is 5.3%Stock A - has a beta of 1.2 betaStock B - has a beta of 0.85 beta (a). What is the required rate of return on each stock? (b). Assume that investors become less willing to take on risk (ie., they become more riskaverse), so the market risk premium rises 6%. Assume that the risk-free rate remains constant. What effect will this have on the required rates of return on the two stocks?
Give typing answer with explanation and conclusion The return on the Tarheel Corporation stock is expected to be 14 percent with a standard deviation of 9 percent. The beta of Tarheel is 0.9. The risk-free rate is 6 percent, and the expected return on the market portfolio is 16 percent. What is the probability that an investor in Tarheel will earn a rate of return less than the required rate of return? Assume that returns are normally distributed. Use Table V to answer the question. Round z value in intermediate calculation to two decimal places. Round your answer to the nearest whole number.

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