Answered: Assume that the risk-free rate is 5%…

Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 3P: Suppose that the risk-free rate is 5% and that the market risk premium is 7%. What is the required...

See similar textbooks

Related questions

Q: The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the…

A: Risk free rate = 4% Market return = 12% Beta of stock X = 1.5

Q: A stock has an expected return of 6%. What is its beta? Assume the risk-free rate is 8% and the…

A: Given details: Expected return = 6% Risk free rate = 8% Expected Market Return = 18% From the above…

Q: Assume that the risk-free rate is 7.5% and the required return on the market is 11%. What is the…

A: Risk free rate = 7.5% Market return = 11% Beta = 2

Q: Assume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required…

A: Required return = Risk free rate + Beta * Market risk premium

Q: A stock has a required return of 11%, the risk-free rate is 6%, and the market risk premium is 3%.…

A: CAPM states:Re = Rf + B (MRP)Required return =11% Risk free rate= 6% Market risk premium =3%

Q: Stanley Corp. common stock has a required return of 17.5% and a beta of 1.75. If the expected risk…

A: In this question we require to calculate the expected return for the market based on CAPM. As per…

Q: Assume that the risk-free rate is 7.5% and the market risk premium is 5%. What is the required…

A: We need to use CAPM equation to calculate required rate of return. The equation is rs =Rf+beta…

Q: Assume that the risk-free rate is 6.5% and the required return on the market is 10%. What is the…

A: To calculate the required rate of return on a stock, we need to use capital asset pricing model…

Q: The expected return on the market is 15% and the risk-free rate of return is 5%. If the Beta of the…

A: In given question we need to compute the expected rate of return for stock using CAPM.

Q: The expected return for a stock, calculated using the CAP M is 10.5%. The market free return is 9.5%…

A: In the given question we are require to calculate the risk free rate : We can calculate the risk…

Q: Assume that the risk-free rate is 4.5% and the required return on the market is 11%. What is the…

A: Calculation of required rate of return on stock

Q: Assume that the risk-free rate is 5.5% and the required returnon the market is 12%. What is the…

A: The formula to compute required rate of return:

Q: A stock has an expected return of 15 percent, its beta is 0.9, and the risk-free rate is 6 percent.…

A: Given the following information: Expected return on stock (r) = 15% Beta (b) = 0.9 Risk free rate…

Q: The risk free rate is 5% and the expected return on the market portfolio is 13%. A stock has a beta…

A: The expected return is the return that the individual expected to gain in the investment over the…

Q: The risk-free rate is 6% and the expected return on the market is 13%. What is the required rate of…

A: Given information is as follows: Risk free rate (Rf) = 6% Expected return on market (Rm) = 13% Beta…

Q: JaiLai Cos. stock has a beta of 0.8, the current risk-free rate is 6.2 percent, and the expected…

A: The provided information are: Beta = 0.80 Expected return = 12% Risk free rate = 6.2%

Q: Assume that the risk-free rate is 6% and the expected return on the market is 13%. What is the…

A: In the given question we are required to calculate the Required rate of return of stock using…

Q: Using the single index model, what is the alpha of a stock with beta of 1.5, a market return of 14%,…

A: As per CAPM Expected return = Risk free rate + ( Market return - Risk free rate ) * Beta Alpha =…

Q: Assume that the risk-free rate is 6.5% and the required return on the market is 8%. What is the…

A: Given: Risk free rate =6.5%Required rate on the market =8%Beta =0.6

Q: Assume that the risk-free rate is 7.5% and the market risk premium is 8%. What is the required…

A: The required rate of return can be ascertained by using the Capital Asset Pricing Model (CAPM). The…

Q: What is the expected return on a stock with a beta of 1.40, if the riskless rate is 4% and the…

A: In this question we need to find expected return according to CAPM. According to CAPM: Expected rate…

Q: Assume that the risk-free rate is 7.5% and the required return on the market is 13%. What is the…

A: CAPM describes the relationship between systematic risk and expected return for assets, particularly…

Q: Assume the expected return on the market is 14 percent and the risk-free rate is 4 percent. What is…

A: The risk premium is the difference between the expected market rate and the risk-free rate. It is…

Q: Assume that the risk-free rate is 2.5% and the required return on the market is 13%. What is the…

A: Capital Asset Pricing Model (CAPM) is a fundamental portfolio and security selection model , to find…

Q: Assume that the risk-free rate is 7.5% and the required return on the market is 13%. What is the…

A: In the Given Question we require to calculate the required rate of return on a stock using following…

Q: By how much does the required return on the riskier stock exceed the required return on the less…

A: Required return: It is the minimum rate of return an investor will seek for investing in a company.…

Q: What is the expected return for a stock that has a beta of 1.4, if the risk-free rate is 5%, and the…

A: Capital Asset pricing model: This model is used to determine the required rate of return on the…

Q: Stock R has an expected rate of return of 9.5%, stock S has a beta of 1.2, the expected rate of…

A: In the given question we require to compute the beta of stock R and expected rate of return for…

Q: If the expected return from the market is 18%, the risk-free rate is 11%, and the beta of Loschert…

A: The term beta of a stock represents the responsiveness of a particular stock in relation to the…

Q: Given the following information, use the CAPM to calculate the beta of the stock. The required rate…

A: Capital Asset Pricing Model CAPM model shows the relationship between the expected return and risk…

Q: Assume that the risk-free rate is 7.5% and the required return on the market is 10%. What is the…

A: The question is based on the concept of the capital asset pricing model (CAPM), the model explains…

Q: Suppose that the risk-free rate is 3% and the market risk premium is 8%. According to the CAPM,what…

A: The capital asset pricing model is the tool used to analyze the relationship between the risk and…

Q: Consider the CAPM. The risk-free rate is 6%, and the expected return on the market is 18%. What is…

A: In the given question we need to calculate the expected return on a stock using CAPM i.e. Capital…

Q: A stock has a required return of 11%, the risk-free rate is 7%, and the market risk premium is 4%.…

A: Required return = risk free rate + beta*market risk premium 11 = 4 + beta*7

Q: Assume that the risk-free rate is 5.5% and the required return on the market is 12%. What is the…

A: According to CAPM model: rstock=rf+βstock×rm-rf where, rf=risk free return rm = market return…

Q: A stock has an expected return of 11.5 percent, the risk-free rate is 3.2 percent, and the market…

A: Expected return of a stock can be computed by using capital asset pricing model: Here, Expected…

Q: What is the expected return for ABC Stock if the risk-free rate is 3.0%, the market risk premium is…

A: The mathematical representation of the formula is:

Q: ected return for a stock with a beta equal to 0.50? - What is the marke

A: Given information :

Q: Assume that the risk-free rate is 2.5% and the required return on the market is 12%. What is the…

A: We need to use CAPM equation for calculation of required rate of return. The equation is…

Q: Stock R has a beta of 2.0, Stock S has a beta of 0.35, the required return on an average stock is…

A: Stock R beta (BR) = 2.0 Stock S beta (BS) = 0.35 Risk free rate (RF) = 3% Market rate of return (RM)…

Q: What is the expected return on a stock with a beta of .8, given a risk-free rate of 3.5% and an…

A: In this question we need to compute the expected return on stock. This question can be solved using…

Q: Consider the CAPM. The risk-free rate is 5%, and the expected return on the market is 15%. What is…

A: In the above question we need to calculate the value of beta. Looking at the information given in…

Q: Assume the expected return on the market is 9 percent and the risk-free rate is 4 percent. What is…

A: CAPM Model: Expected return on Stock = Risk free Rate + Beta x ( Market risk Premium) Market risk…

Q: Assume that the risk-free rate is 7% and the required return on the market is 9%. What is the…

A: Every investor invests the amount in some securities in order to get a good return, however, the…

Question

100%

Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. a. What are the betas of Stocks X and Y? b. What are the required rates of return on Stocks X and Y? c. What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
Suppose that the risk-free rate is 5% and that the market risk premium is 7%. What is the required return on (1) the market, (2) a stock with a beta of 1.0, and (3) a stock with a beta of 1.7?
Now assume that the stock is currently selling at $30.29. What is its expected rate of return?
An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds) is 7.0%, and that the market risk premium is 5%. What is the required rate of return on the firms stock?
What is a characteristic line? How is this line used to estimate a stocks beta coefficient? Write out and explain the formula that relates total risk, market risk, and diversifiable risk.
Assume that the risk-free rate is 3.5% andthe market risk premium is 4%. What is the required return for the overall stock market?What is the required rate of return on a stock with a beta of 0.8?
Assume that the risk-free rate is 5% and market risk premium is 6%. What is the expected return for the overall stock market? What is the required rate of return on a stock that has a beta of 1.2?
How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
Assume that the risk-free and rate is 5.50% and the market risk premium is 7.75%. What is the expected return for the overall stock market (rm)?
The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27. What is the required rate of return on the stock, E(Ri)? Use the CAPM equation.
Assume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required return on the market, on a stock with a beta of 1.0, and on a stock with a beta of 1.2?