What is the expected return of asset gamma

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Problem 1: The Sharpe ratio of an asset Alpha is 0.8. Alpha has and expected return of 12% and a standard deviation of 20%. You have been tasked to arrive at the expected return of an asset Gamma. The market return in this economy is 14% and the beta (systematic risk) of Gamma with market return is 1.4. What is the expected return of asset Gamma?

Problem 2: A firm is expected to grow in perpetuity at a rate of 5%. If the current year free cash flow is 15 million, the cost of equity is 16%, after-tax cost of debt is 9% and the target debt to equity ratio is 0.25, then what is the value of this firm today if the tax rate is 20%?

Problem 3: A firm has a current market value of INR 250 crores. The current cost of equity is 15% and the tax rate is 20 percent. If the firm has announced to issue a per- petual debt of INR 50 crores at 6% interest rate to change the capital structure of the firm, what is the market value of the firm after this announcement?

Reference no: EM132671822

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