Would your expected return estimate change if the purpose

Reference no: EM13621664

You have run a regression of monthly returns on a stock against monthly returns on the S&P 500 index, and come up with the following output Rstock = 0:25% + 1:25 RMarket; R2 for the regression = 0.60. The current one-year treasury bill rate is 4.8%, the current ten-year bond rate is 7.25% and the current thirty-year bond rate is 8%. The firm has 10 million shares outstanding, selling for $10 per share. The market risk premium using t- bill rate is 8.5% and using t-bond rate is 5.5%

1. What is the expected return on this stock over the next year?

2. Would your expected return estimate change if the purpose was to get a discount rate to analyze a thirty-year capital budgeting project? What is the new estimate?

3. The stock's variance of returns is 900. What is the idiosyncratic risk for the stock?

4. If the variance of market returns is 345.6 what is the covariance between the return on the stock and return on the market?

5. What proportion of the risk of this stock is due to the market?

Reference no: EM13621664

Questions Cloud

Consider a two year call on 10000000 the strike rate of the : consider a two year call on 10000000. the strike rate of the call is 105 yen. this call gives you the option to pay yen

A average human dna molecule contains 5 x 108 base-pairs : an average human dna molecule contains 5 x 108 base-pairs each of which could be regarded as a rung on the dna ladder

Mnufacturing inc expects to generate perpetual : manufacturing inc. expects to generate perpetual yearly operating cash flow of 800000 per year. the firm has

A person fishing from a pier observes thatsevenwave crests : a person fishing from a pier observes thatsevenwave crests pass by in 6.2s and estimates the distance between two

Would your expected return estimate change if the purpose : you have run a regression of monthly returns on a stock against monthly returns on the sampp 500 index and come up with

In being launched from rest it moves through a distance of : a fighter jet is launched from an aircraft carrier with the aid of its own engines and a steam-powered catapult. the

A vertical right circular cylindrical tank measures 30ft : a vertical right circular cylindrical tank measures 30ft high and 20 ft in diameter. it is full of oil weighing 51.2

Crisp cookwares common stock is expected to pay a dividend : crisp cookwares common stock is expected to pay a dividend of 3 a share at the end of the year d1 3.00 and its betta

Given the following data find the straight-line equation : given the following data find the straight-line equation using the least square method.find the standard error.x 1 2 3

User Account

All Pages