Using the Capital Asset Pricing Model (CAPM), what's this company's cost of common equity? Expected market return = 10% Risk-free rate = 4% Beta = 1.3 %3D
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Q: 15
A: MARKET RISK PREMIUM (MARKET RETURN - RISK FREE RATE) = 8% BETA= 1.8 RISK FREE RATE = 3%
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A: cost of equity = Risk free rate + beta * (Return from market - risk free rate)
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- 4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premiumFor each of the cases shown in the following table, use the capital asset pricing model (CAPM) to find the required return and explain your answer. Case Risk-free rate Market return Beta (%) (%) 8 A 5 1.3 В 8. 13 0.9 C 9 12 -0.2 D 10 15 1.0 E 10 0.6Assume that you are a consultant to Thornton Inc., and you have been provided with the following data: risk 1.8. What is the cost of equity from free rate rRF = 5.5%; market risk premium RPM retained earnings based on the CAPM approach? = 6.0%; and b =
- 1. Using capital asset pricing model, compute for the cost of equity with risk-free rate of 4%, market return on 8%, beta of 1.5 and tax rate of 30%. 2. With risk-free rate of 5%, beta of 1.5, market return of 8%, prevailing credit spread (rate applied on debt on top of risk-free rate) of 3%, tax rate of 30% and equity ratio of 30%, compute for the weighted average cost of capital. 3. The appropriate WACC of a company is 8%. With risk-free rate of 4%, market return of 10%, prevailing credit spread of 2%, tax rate of 30% and equity ratio of 40%, compute the beta.As per Capital Asset Pricing Model (CAPM) : Re=Rf+(Rm-Rf)βwhere, Re= Required rate of returnRf= Risk free rate of return = 0%Rm = Market return or Expected return on market = 3.3%β = Beta of the stock = 1.24Now, Re= Rf + Rm - Rf βRe= 0 + 3.3 - 0 ×1.24Re= 4.092% To calculate the abnormal return we will use the formula: = E(R) - Re= 3% - 4.092% = -1.092% or - 0.01092 How did you get the 4.092%?Using Capital Asset Pricing Method (CAPM), compute for the cost of capital (equity) with risk-free rate of 4%, market return of 8% and Beta of 1.75 a. 13.00% b. 12.00% c. 11.00% d. 10.00%
- Suppose that we have this information about the current market return and the risk-free return: • The market return is 12%, the risk free return is 8%, and the ẞ is 1.4. Calculate the cost of equity.The cost of equity using the CAPM approach The current risk-free rate of return (rRF) is 3.86%, while the market risk premium is 6.63%. the Monroe Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Monroe's cost of equity isManipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively. b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively. a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is %. (Round to two decimal places.)
- Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.59 when the risk-free rate and market return are 7% and 12%, respectively. b. Find the risk-free rate for a firm with a required return of 10.925% and a beta of 0.84 when the market return is 12%. c. Find the market return for an asset with a required return of 9.417% and a beta of 0.31 when the risk-free rate is 8%. d. Find the beta for an asset with a required return of 19.559% when the risk-free rate and market return are 10% and 17.9%, respectively. a. The required return for an asset with a beta of 1.59 when the risk-free rate and market return are 7% and 12%, respectively, is %. (Round to two decimal places.) b. The risk-free rate for a firm with a required return of 10.925% and a beta of 0.84 when the market return is 12% is %. (Round to two decimal places.) c. The market return for an asset with a…Manipulating CAPM Use the basic epuation for the capital asset model (CAPM) to work each of the followig problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively.b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%c. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively.Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.48 when the risk-free rate and market return are 8% and 13%, respectively. b. Find the risk-free rate for a firm with a required return of 14.684% and a beta of 1.47 when the market return is 12%. c. Find the market return for an asset with a required return of 12.040% and a beta of 0.95 when the risk-free rate is 5%. d. Find the beta for an asset with a required return of 13.312% when the risk-free rate and market return are 10% and 12.3%, respectively. C a. The required return for an asset with a beta of 1.48 when the risk-free rate and market return are 8% and 13%, respectively, is %. (Round to two decimal places.)