Computation of beta of the firm and market portfolio

Reference no: EM1311513

1. Suppose the market portfolio is equally likely to increase by 30% or decrease by 10%.

a) Calculate the beta of a firm that goes up on average by 43% when the market goes up and goes down by 17% when the market goes down?

b) Calculate the beta of a firm that goes up on average by 18% when the market goes down and goes down by 22% when the market goes up.

c) Calculate the beta of a firm that is expected to go up by 4% independently of the market.

2. Suppose the risk-free interest rate is 4%.

a) i. Use the beta you calculated for the stock in Problem 1 (a) to estimate its expected return.

ii. How does this compare with the stock's actual expected return?

b) i. Use the beta you calculated for the stock in Problem 1 (b) to estimate its expected return.

ii. How does this compare with the stock's actual expected return?

3. Suppose the market risk premium Is 6.5% and the risk-free interest rate is 5%. Calculate the cost of capital of investing in a project with a beta of 1.2.

Reference no: EM1311513

Questions Cloud

Find out the magnitude and direction : To stretch a relaxed biceps muscle 2.30cm requires a force of 25 N. Find the Young's modulus for muscle tissue assume it to be a uniform cylinder of length 0.24 m and cross-sectional area 51 cm2.

Make the company cash budget for the upcoming fiscal year : make the company cash budget for the upcoming fiscal year and Garden Depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash

Fiscal stimulus package : President Obama pushed his massive fiscal stimulus package of $787 through the Congress and later passed by the House and Senate, whose centerpiece was spending most of this stimulus funds

What is the magnitude of the magnetic force the proton : A steel beam that is 7.00m long weighs 330N. It rests on two supports, 3.00m apart, with equal amounts of beam extending from each end. Suki, who weighs 505 N, stands on the beam in the center and then walks toward one end. How close to the end can s..

Computation of beta of the firm and market portfolio : Computation of beta of the firm and market portfolio and how does this compare with the stock's actual expected return

Purpose a production budget for the second quarter : Purpose a production budget for the second quarter; in your budget, show the number of units to be produced each month and for the quarter in total.

Simple linear regression : The results of the simple linear regression are provided below.

Purpose a schedule of expected cash collections : Purpose a schedule of expected cash collections from sales, by month and in total, for the second quarter

Change in real gdp per capita : The information below explains the real GDP per capita for the country of Utopia for the period of 1975 to 1991.

User Account

All Pages