What is the expected return on the market portfolio

Assignment Help Financial Management

Reference no: EM13911780

Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model:

a. What is the expected return on the market portfolio?

b. What would be the expected return on a zero-beta stock?

Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $41. The stock risk has been evaluated at β = –.5. c-1.

Using the SML, calculate the fair rate of return for a stock with a β = –0.5.

Calculate the expected rate of return, using the expected price and dividend for next year.

Reference no: EM13911780

Questions Cloud

Portfolio expected return beta : Calculate the expected return of portfolio A with a beta of 1.5. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign.)

Analysis of liquidity and profitability measures of apple : The following summarized data (amounts in millions) are taken from the September 24, 2011, and September 25, 2010, comparative financial statements of Apple Inc., a manufacturer of personal computers, portable digital music players and mobile communi..

Coin collection contains : Your coin collection contains 95 1952 silver dollars. Required: If your grandparents purchased them for their face value when they were new, how much will your collection be worth when you retire in 2060, assuming they appreciate at an annual rate of..

What political risks that faced multinational corporations : Describe general difference between the capital structures of firms based in the United States and those of firms based in Japan. Please give further explanation for the differences.

What is the expected return on the market portfolio : Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model: What is..

Simple interest on its savings account balances : First City Bank pays 8 percent simple interest on its savings account balances, whereas Second City Bank pays 8 percent interest compounded annually. If you made a deposit of $8,500 in each bank, how much more money would you earn from your Second Ci..

Find the expected monetary outcome : Find the expected monetary outcome. Mark this value on your graph of part a. Then interpret this value. Calculate the standard deviation of x.

Based on the constant-growth dividend discount model : Jand, Inc., currently pays a dividend of $1.48, which is expected to grow indefinitely at 6%. If the current value of Jand’s shares based on the constant-growth dividend discount model is $39.16, what is the required rate of return?

Most us corporate bonds are investment grade : Most US corporate bonds are investment grade. Most US corporate convertible bonds are investment grade. Investors react negatively (i.e., a

User Account

All Pages