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The average return on the Market is 12% while the market risk premium is 7%. What is the require
Blue Co. has a collection of shares that is publicly trade. The value of each security and its stock beta are as follows:
stock | Investment | Beta |
CEB | 3,000,000 | 2 |
SMC | 3,000,000 | 1.2 |
SCC | 800,000 | .5 |
MTB | 1,200,000 | 1 |
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- b) Calculate the beta of the following portfolio. Amount invested Stock Security Beta A RM6,700 1.58 B RM4,900 1.23 C RM8,500 0.79Assume that the financial markets are in equilibrium. Information on three particular shares is provided in the table below. Find the risk free rate and the expected return on the market portfolio. Asset A B C A. 6%, 18% B. 6%, 14% C. 5%, 18% D. 7%, 16% E. 5%, 14% Expected Return 7.6% 12.4% 15.6% Beta 0.2 0.8 1.2The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows: CAPM Elements Value Risk-free rate (rRF) Q1 Market risk premium (RPM) Q2 Happy Corp. stock’s beta Q3 Required rate of return on Happy Corp. stock Q4 An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.’s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst’s prediction. Happy Corp.’s new required rate of return is Q5.____ The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the Q6.____ the slope of the SML. Q7. Which of the…
- The following graph plots the current security market line (SML) and indicates the return that investors require from holding stock from Happy Corp. (HC). Based on the graph, complete the table that follows. For graph see image 13a CAPM Elements Value Risk-free rate (rRFRF) Market risk premium (RPMM) Happy Corp. stock’s beta Required rate of return on Happy Corp. stock An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.’s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst’s prediction. Happy Corp.’s new required rate of return is _____?. For grapgh see image 13b The SML helps determine the level of risk aversion among investors.…An investor is evaluating the common share of Bulldogs Inc. which has a beta of 1.8. The expected return for the securities market as a whole is 8%. The risk-free rate on a treasury bill is 2%. Based on the capital asset pricing model, what is the expected risk adjusted return of the Bulldogs Inc.’s common share? (Format: X.XX%)What is the beta of the portfolio held by Blue Co.? Blue Co. has portfolio fund consist of three stock s as follows stock invetsment beta monde 2,500,000 1.3 bdo 1,300,000 average pal 1,200,000 (.50)
- The rate of return on the market stock index is 13 percent. The rate of return on a risk-freebank account is 1%. The B (beta) of stock XYZ is 1.5. Use the data to answer the questionsbelow.a. What is the market risk premium? Show your work.b. What is the cost of equity for XYZ? Show your work.c. What is the stock XYZ risk premium? Show your work.d. Draw the graph of the Security Market Line and show the stock of XYZ on the graph.The end-of-year dividend on stock ABC is expected to be $0.8. The growth rate of dividend isexpected to be 5 percent for ever. The current price of the ABC stock is $10. Use the data toanswer the questions below.e. What is the cost of equity for stock ABC? Show your work.f. Suppose stock KLM has the same end-of-year dividend, dividend growth rate andprice as stock ABC, but the risk of KLM stock is much greater than of the ABC stock.What is your estimate of the cost of equity of stock KLM using the method at part e?Do you agree with the valuation of the cost of…(a) Write the equation of the Security Market Line (SML). Compute and draw the SML when the expected return of the NASDAQ index (market portfolio) is 17% and the return to the risk-free asset is 7%. (b) Given the SML in (b), compute the beta and the expected return of the new share Facebook assuming the volatility of the NASDAQ index (market portfolio) is 23.86% and its covariance with the share is 0.0655. can you help with b(b) Write the equation of the Security Market Line (SML). Compute and draw the SML when the expected return of the NASDAQ index (market portfolio) is 17% and the return to the risk-free asset is 7% (c) Given the SML in (b), compute the beta and the expected return of the new share Facebook assuming the volatility of the NASDAQ index (market portfo- lio) is 23.86% and its covariance with the share is 0.0655. - (d) Facebook pays a dividend of 5 GBP and the growth of dividends is equal to 4% for the first two years and then rise to 6%. Assuming constant cost of capital as computed in point (c), estimate the price of the Facebook share. (e) Consider investing 20% of your wealth in the Facebook share with beta as in (c). What is the proportion you need to allocate to the Apple share with beta 1.8 in order to replicate the market portfolio? [