What is the expected return of the stock

Reference no: EM133291104

1. Imagine that you are an investor who is contemplating whether to purchase a stock which is valued at $100 per share to today that pays a 3.5% annual dividend. The stock has a beta compared with the market of 0.3, which indicates that it is riskier than a market portfolio. Keep in mind also that the risk free rate is 5% and that you would expected the market to rise in value by 9% per year.

What is the expected return of the stock using the CAPM formula

2. The following four macro-economic factors were identified regarding a stock As returns, the stock sensitivity to each factor and the related risk premium associated with each factor have been calculated as follows:

Gross domestic product (GDP) growth=0.6 RP=4%

Inflation rate= 0.8, RP=2%

Platinum prices=-0.7, RP= 5%

Standard and Poor's 500 index return= 1.3 RP=9%

The risk free rate is 3%

Calculate the expected rate of return using the Arbitrage pricing theory formula.

3. A stock has the following four factors which were used to explain the return on Stock YGF and the level of sensitivity of each factor and the risk premium associated.

GDP growth: β= 0.4, RP = 3%

Inflation rate: β= 0.5, RP = 3%

Commodity prices: β=-0.6, RP=6%

Standards and Poor's 500 Index Returns: β=1.5, RP=8%

While the risk free rate is 4%

Using the APT formula, calculate the expected returns on the said stock

4. The following factors were identified as it relates to a particular stock that Adam was interested in purchasing

GDP 4.5, RP=8%

Inflation rate 2.4, RP=5%

Silver Price .75, RP=6%

Calculate the expect return

5. Using the following information determine the expected rate of return for a risky asset using CAPM, consider the following example stocks assuming that you have already computed their betas

Stocks Beta

A 0.70

B 1.00

C. 1.15

D 1.40

E. -0.30

Also assume that you expect the economy RFR to be 6% (0.06) and the expected return on the market portfolio (E(Rm)) to be 8% (0.08) which implies a market risk premium of (0.04).
What would be the SML required rate of return for the following stocks. A, B,C,D and E

6. The following factors were identified regarding Stock B. the stock sensitivity to each factor and the related risk premium associated with each factor were calculated as follows
GDP- 0.8, RP 6%
Inflation rate 1.4, RP=10.5
Gold Price 0.5, RP=6%
Standard and Poor 500=1.2, RP=6%
Risk free rate=6%
What is the expected return of Stock B?

7. Imagine that you are an investor who is contemplating whether to purchase a stock which is valued at $100 per share to today that pays a 3% annual dividend. The stock has a beta compared with the market of 1.3, which indicates that it is riskier than a market portfolio. Keep in mind also that the risk free rate is 3% and that you would expected the market to rise in value by 8% per
year.
What is the expected return of the stock using the CAPM formula

8. The following four factors were identifies and later used to explain the return on a stock and level of sensitivity
GDP growth: β=0.6, Rp=4%

Inflation rate: β=0.6, RP=5%
Gold Prices: β=0.8, RP=6%
Standard and Poor's 500 Index Returns: β=2.5, RP=8%
The risk free rate is 6%
Using the APT formula, calculate the expected rate of returns on the stock

Reference no: EM133291104

Questions Cloud

What is the initial investment for the project : What is the initial investment for the project and What is the expected incremental operating third year cash flow

Generally accepted accounting standards : explain the ten PCAOB standards that the AICPA previously refers to as generally accepted accounting standards.

Evaluating this claim offered by partridge offer analysis : After evaluating this claim offered by Partridge offer your analysis as to whether you think he is right and generally you think his claim applies.

Calculate relative valuation measures : Calculate Relative Valuation measures, i.e., PE and Price-to-book, assuming a price for Jollibee of P34. Would you recommend to buy Jollibee shares

What is the expected return of the stock : What is the expected return of the stock using the CAPM formula and Calculate the expected rate of return using the Arbitrage pricing theory formula

Established businesses to track business : Why is important for new or established businesses to track business related outcomes using statistics.

What is the disposition effect : GFGB 6007 Fordham University What is the disposition effect? How can the disposition effect harm wealth? Use the behavioral bias(es) discussed in class

Primary duties of an accountant is to prepare written report : One of the primary duties of an accountant is to prepare written reports. Accountants today must be able to research, interpret and communicate complex

How does the cost of equity change : FINA 3361 Saint Mary's University How does the cost of equity change if we impose a 30% corporate tax while the unlevered beta remains the same

User Account

All Pages