What is the risk premium on the market

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Reference no: EM132747006

Questions -

Question 1 - A share of stock with a beta of 0.78 now sells for $53. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors' expectation of the price of the stock at the end of the year?

A share of stock with a beta of 0.78 now sells for $53. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 5%, and the market risk premium is 8%. If the stock is perceived to be fairly priced today, what must be investors' expectation of the price of the stock at the end of the year?

How does expected return vary with beta?

The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model:

What is the risk premium on the market?

What is the required return on an investment with a beta of 1.5?

If an investment with a beta of 0.7 offers an expected return of 8.5%, does it have a positive or negative NPV?

If the market expects a return of 10.8% from stock X, what is its beta?

Question 2 - A project under consideration has an internal rate of return of 12% and a beta of 0.8. The risk-free rate is 7%, and the expected rate of return on the market portfolio is 12%.

a. What is the required rate of return on the project?

b. Should the project be accepted?

c. What is the required rate of return on the project if its beta is 1.80?

d. If project's beta is 1.80, should the project be accepted?

Question 3 - The Treasury bill rate is 4% and the market risk premium is 8%.

Project Beta Internal Rate of Return, %

P 1.10 16

Q 0.00 12

R 2.00 20

S 0.50 13

T 1.60 22

a. What are the project costs of capital for new ventures with betas of 0.85 and 1.78?

b. Which of the capital investments shown above have positive (non-zero) NPV's?

Question 4 - You are considering the purchase of real estate that will provide perpetual income that should average $56,000 per year. How much will you pay for the property if you believe its market risk is the same as the market portfolio's? The T-bill rate is 4%, and the expected market return is 14.0%.

Reference no: EM132747006

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