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1. A stock has a required return of 11%, the risk-free rate is 6%, and the market risk premium is 4%. What is the stock's beta? If the market risk premium increased to 5%, what would happen to the stock's required rate of return? Assume that the risk-free rate and the beta remain unchanged.
2. Stock R has a beta of 1.6, Stock S has a beta of 0.65, the expected rate of return on an average stock is 13%, and the risk-free rate of return is 7%. By how much does the required return on the riskier stock exceed the required return on the less risky stock?
3. Calculate the required rate of return for Manning Enterprises assuming that investors expect a 3% rate of inflation in the future. The real risk-free rate is 2.5%, and the market risk premium is 6.5%. Manning has a beta of 1.6, and its realized rate of return has averaged 13.5% over the past 5 years.
discuss the following topicdoes purchasing power parity ppp eliminate concerns about long-term exchange rate risk? one
The treasurer of a large corporation wants to invest $33 million in excess short-term cash in a particular money market investment. The prospectus quotes the instrument at a true yield of 4.21 percent; what are the bond equivalent and discount yields..
This case analyzes the problems facing a bank in a foreign country and the reasons for deciding to stay or to close its operation. Royal Bank of Canada is the bank involved in this real life situation.
Compute the net advantage to leasing.- In general, what effect would the use of accelerated depreciation, such as MACRS, have on the answer to part a?
Snoopy borrows $7300 at 9.2% nominal convertible monthly to pay for his new super-deluxe doghouse. To pay off the loan, he agrees to make monthly interest payments on the loan, and he also will make equal monthly deposits into a sinking fund account ..
Decker Tires’ free cash flow was just FCF0 = $1.32. Analysts expect the company's free cash flow to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The WACC for this company 9.00%. Decker has $4 million..
Identify whether this statement is considered as Capital Allocation Line, Capital Market Line, Security Market Line or Characteristic Market Line. And why? "The market portfolio as the optimal portfolio of risky securities"
Market A deals in low-risk securities with an average interest rate of 5%. Market B deals in high-risk securities with an average interest rate of 7%. Suddenly there is a financial crisis and the economy enters recession. Before the recession, the ri..
A firm is considering actions which will raise its debt ratio. It is anticipated that these actions will have no effect on sales, operating income, or on the firm's total assets. If the firm does increase its debt ratio, which of the following will o..
Trevelyan Ltd sold equipment with a net book value of EUR 25,000 and recorded a gain of EUR 10,000 on disposal of non-current assets. How should this be reported in a statement of cash flows?
Deployment Specialists pays a current (annual) dividend of $1 and is expected to grow at 24% for two years and then at 5% thereafter. If the required return for Deployment Specialists is 9.5%, what is the intrinsic value of Deployment Specialists sto..
In discussions about Asuper-B & ABC Trust Plans, we noted that the surviving spouse can be allowed certain powers of appointment over the property held in trust. But, it is critically important that the power of appointment not constitute a general p..
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