Evaluate the use of capm model

Reference no: EM132964800

a) Tony is a risk moderator and checking the daily stock prices to
find the best option for him. He identified LUX Ltd shares are trading for $24 and the expected dividend is $2.8. And based on the ASX market predictions the company growth is estimated to be 4%. Calculate the expected rate of return if Tony is going ahead with the investment.

b) Evaluate the use of CAPM model and explain how we can use it in real-world scenarios? And if the stock beta is equal to zero and does that provide an assurance to offer a zero expected rate of return. Explain.

c) ABC pharmaceuticals recently launched a new covid vaccine and due to the current covid situation, the company's shares doubled in price over the following week. Which form of efficiency is not consistent with the above outcome. Critically evaluate.

d) TKMAX is planning to use debt sources to raise their funds and recently sold a bond of 20- years. The face value of the bond is $1,000 and the coupon rate is 5%. It is now five years later, and the current market rate of interest is 4%. What is the current market price (intrinsic value) of the bonds? Round off to the nearest $1?

Reference no: EM132964800

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