What is the expected return of the stock

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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

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