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What would an investor in mapco stock require

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Reference no: EM132505663

You run a regression of monthly returns of Mapco, an oil and gas-producing firm, on the S& P500 Index and come up with the following output for the period 1991-1995. 

Intercept of the regression = 0.32%

X-coefficient of the regression = 1.21

Standard error of X-coefficient = 0.20

R2 = 36%

There are 20 million shares outstanding, and the current market price is $2/share.The firm has $20 million in debt outstanding. (The firm has a tax rate of 36%.)

a. What would an investor in Mapco's stock require as a return, if the Treasury bond rate is 1.25%?

b. What proportion of this firm's risk is diversifiable? Market risk premium is 6.51%.

Reference no: EM132505663

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