Calculate the required rate of return on security

Assignment Help Financial Management

Reference no: EM131187912

The risk-free rate is 4% and the expected rate of return on the market protfolio is 9%

a. Calculate the required rate of return on a security with a beta of 1.28. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places)

Required return __________%

b. if the security is expected to return 12%, is it overpriced or underpriced?

Reference no: EM131187912

Questions Cloud

Expected return and portfolio beta : 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, if the interest rate on Treasury bills is 6% and the ..

What price will the stock reach an equilibrium : A share of stock with a beta of .78 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%. Suppose investors believe the stock will sell for $60 at year-end, is the st..

Discuss the risks the company faces and the actions : Using the annual report from the company that you have selected for your Final Project ( Mc Donalds) , discuss the risks the company faces and the actions they take to mitigate those risks. Refer to the Management Discussion and Analysis section of t..

Share of stock with beta : A share of stock with a beta of .82 now sells for $57. Investors expect the stock to pay year-end dividend of $2. the T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors' e..

Calculate the required rate of return on security : The risk-free rate is 4% and the expected rate of return on the market protfolio is 9%. Calculate the required rate of return on a security with a beta of 1.28.

The expected rate of return on the market portfolio : You are considering acquring a firm that you believe can generate expected cash flow of $22,000 a year forever. However, you recognize that those cash flows are uncertain. suppose you believe that the beta of the firm is 1.6. How much is the firm wor..

Investors expect the market rate of return : Investors expect the market rate of return this year to be 12%. A stock with a beta of .9 has an expected rate of return of 10%. If the market return this year truns out to be 8%, what is the rate of return on the stock?

Analyze the capital asset pricing model : Analyze the Capital Asset Pricing Model (CAPM). Using the course text and an article from ProQuest as references, address the following: Explain how the CAPM assists in measuring both risk and return. Explain how the CAPM assists in calculating the w..

Prepare the marginal cost of capital schedule : Company ABC has an optimal capital structure of 40% debt and 60% common equity. Assume that the debt break points occur at $36 million and $50 million, and that the common equity break point occurs at $45 million. The after tax cost of debt is 6%, 10..

User Account

All Pages