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Assume that stock P has a standard deviation of 50% and its correlation with the market is 0.8. The market’s standard deviation is 20%. The Market Risk Premium (Rm-Rf) is 7% and the risk free rate is 5%
1. What would be the beta of stock P?
2. What would be its return of stock P as predicted by the CAPM?
3. If the stock has an actual return of 18%, what is the alpha of this stock?
4. Is it under or over-valued? What would you do with this stock (sell/buy)?
5. Assume that you run a regression using CAPM to obtain the beta of stock P. The R2 of the regression is 0.4. How would you interpret this result?
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Discuss the issues raised in the following hypothetical situations based on information learned in the textbook. A real estate licensee must treat customers fairly. Clients are entitled to all this information and the licensee's opinion regarding mar..
How many shares will the company repurchase as a result of the debt issue? How many shares of common stock will remain after the repurchase?
Is there a way of doing this question using present value formula?
Volbeat Corporation has bonds on the market with 13 years to maturity, a YTM of 9.9 percent, and a current price of $950. The bonds make semi annual payments, find coupon rate
"Distributions to Shareholders and Capital Structure Decisions". Contrast the differences between a stock dividend and a stock split.
A manager believes his firm will earn an 18% return next year. His firm has a beta of 1.75, the expected return on the market is 13% and the risk free rate is 5%. Compute the return the firm should earn and determine whether it is undervalued or over..
If the $11 cost per vehicle, in 1972, is equal to $64.25 in 2017, then what rate of inflation, i%=?, was used to determine the 2017 costs?
Suppose home owners owe $5.5 trillion in mortgage loans. If the mortgage interest rate is 5 percent, approximately how much are home owners paying in annual mortgage interest? $? If the interest rate drops to 4 percent, by how much will annual intere..
A person age 37 wishes to set up an ordinary annuity so that she will start to get paid $5,000 a year when she is 47 and throughout the rest of her life. What size premium would she have to pay?
Suppose you bought 139.00 shares of Wal-Mart (WMT) one year ago today at $21.00. Over the last year, you received $97.00 in dividends .
The dividends are anticipated to maintain a growth rate of 2.50 percent, forever. If the stock currently sells for $50.30 per share, what is the required return
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