Find the expected return on a stock

Assignment Help Financial Accounting

Reference no: EM1310128

Q1. Consider the multi-factor APT with two factors. The risk premiums on the factor 1 and factor 2 portfolios are respectively 5% and 3%. Stock A has a beta of 1.4 on factor 1, and a beta of 0.5 on factor 2. The expected return on stock A is 14%. If no arbitrage opportunities exist, the risk-free rate of return is __________.

A) 5.0%

B) 5.5%

C) 6.0%

D) 6.5%

Q2. Security A has an expected rate of return of 12% and a beta of 1.10. The market expected rate of return is 8% and the risk-free rate is 5%. The alpha of the stock is __________.

A) -1.7%

B) 3.7%

C) 5.5%

D) 8.7%

Q3. The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should __________.

A) buy stock X because it is overpriced

B) buy stock X because it is underpriced

C) sell short stock X because it is overpriced

D) sell short stock X because it is underpriced

Q4. Asset A has an expected return of 15% and a Sharpe ratio of .4. Asset B has an expected return of 20% and a Sharpe ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______.

A) asset A

B) asset B

C) no risky asset

D) can't tell from the data given

Q5. The expected return on the market portfolio is 15%. The risk-free rate is 8%. The expected return on SDA Corp. common stock is 16%. The beta of SDA Corp. common stock is 1.25. Within the context of the capital asset pricing model, __________.

A) SDA Corp. stock is underpriced

B) SDA Corp. stock is fairly priced

C) SDA Corp. stock's alpha is -0.75%

D) SDA Corp. stock alpha is 0.75%

Q6. Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%. Portfolio X has an expected return of 14% and a beta of 1.00. Portfolio Y has an expected return of 9.5% and a beta of 0.25. In this situation, you would conclude that portfolios X and Y __________.

A) are in equilibrium

B) offer an arbitrage opportunity

C) are both underpriced

D) are both fairly priced

Q7. What is the expected return on a stock with a beta of 0.8, given a risk free rate of 3.5% and an expected market return of 15.6%?

A) 3.8%

B) 13.2%

C) 15.6%

D) 19.1%

Q8. If the only data available is that the beta of a stock is 1.4, what is the likely return on an investment in this stock if the market falls 5%?

A) -6%

B) -5%

C) +5%

D) +6%

Q9. The risk premium for exposure to aluminum commodity prices is 4% and the firm has a beta relative to aluminum commodity prices of 0.6. The risk premium for exposure to GDP changes is 6% and the firm has a beta relative to GDP of 1.2. If the risk free rate is 4.0%, what is the expected return on this stock?

A) 10.0%

B) 11.5%

C) 13.6%

D) 14.0%

Reference no: EM1310128

Questions Cloud

Change in the optimal distribution plan would result : Illustrate change in the optimal distribution plan would result. Illustrate general conclusions can you draw for transportation models with no identical plant-correlated costs.

Outcome of the intervention : What is the most probable outcome of this intervention

Estimate the stiffness of the spring : What centripetal force does an 80-kg passenger experience when seated 12 m from the center of the Ferris wheel whose angular speed is 0.50 rad/s.

Tax effect-four batches of new stock : Brian purchased 500 shares of the substantially identical stock for $3,000. What is the tax effect fir Brian as well as what will be the basis of each of four batches of new stock?

Find the expected return on a stock : Evaluate the expected return on a stock with a beta of 0.8, given a risk free rate of 3.5% and an expected market return of 15.6%

The spectator on the bridge hear the splash : What type of weather front will be responsible for the following weather forecast? "Cool today with rain becoming heavy by this afternoon. Slightly warmer tomorrow. "Winds south easterly becoming westerly to north westerly by the tomorrow morning."

Sell your stake in masonic bbs at this time : If you were Aleksandra Masonic, would you want to sell your stake in Masonic BBS at this time.

Rooters theory based on external locus : I think this statement is false as of the part of Rooter's theory based on the external locus. Is this statement True or False?

Computation of value or price of bond : Computation of value or price of bond thus it makes no coupon payments over the life of the bond

User Account

All Pages