#38 You have risen through the ranks of a coffee company, from the lowly green-apron barista to the coveted black apron, and all the way to CFO. A quick internet checkshows that your company's beta is 0.5. The risk-free rate is 5.5% and you believe the market risk premium to be 4.9%. What is your best estimate of investors' expectedreturn on your company's stock (its cost of equity capital)?The expected return is %. (Round to two decimal places.)

Cost of equity is expected return on equity that an investor require on its investment. It is also…

Answered: You have risen through the ranks of a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You have risen through the ranks of a coffee comany, from the lowly green-apron barista to the coveted black apron, and all the way to CFO. A quick internet check shows that your company's beta is 0.68. The risk-free rate is 5.8% and you believe the market risk premium to be 5.7%. What is your best estimate of investors' expected return on your company's stock (its cost of equity capital)? The expected return is %. (Round to two decimal places.)
Assume that most of the investors in the stock market are active in an online chat group.As one of the investors holding ABC shares, you find out that the ABC stock has an expected return of 9.8% from the perspective of most investors in the chat group.In addition, you gathered the following information by carrying out market research. In your research, the market return is 6.8% and the risk-free rate is estimated to be 3%. The beta and past 1-month variance of Stock ABC is 1.2 and 7.8% respectively. The stock price exhibits an upward trend last week.What is the expected return of Stock ABC according to CAPM?
Assume that most of the investors in the stock market are active in an online chat group.As one of the investors holding ABC shares, you find out that the ABC stock has an expected return of 9.8% from the perspective of most investors in the chat group.In addition, you gathered the following information by carrying out market research. In your research, the market return is 6.8% and the risk-free rate is estimated to be 3%. The beta and past 1-month variance of Stock ABC is 1.2 and 7.8% respectively. The stock price exhibits an upward trend last week. Should you buy or sell Stock ABC if CAPM is correct? Why?
Assume that most of the investors in the stock market are active in an online chat group.As one of the investors holding ABC shares, you find out that the ABC stock has an expected return of 9.8% from the perspective of most investors in the chat group.In addition, you gathered the following information by carrying out market research. In your research, the market return is 6.8% and the risk-free rate is estimated to be 3%. The beta and past 1-month variance of Stock ABC is 1.2 and 7.8% respectively. The stock price exhibits an upward trend last week. With respect to your market research, suggest the information that you can use to determine your subsequent transaction in Stock ABC. You can assume the market is weak form efficient.
Your boss asks you to compute the cost of equity for ABC Corp. using the capital asset pricing model (CAPM). You use Yahoo! Finance to find out that the beta of the stock is 1.30, the risk-free rate is 3%, and the market risk premium is 5.7%. What is your estimate of the cost of equity?
You have been asked to calculate the required return for a stock that you are considering investing in. You recently looked up the risk-free rate (as measured by Treasury bonds) and found it to be 1%. You also looked up the current market return of the S&P 500 and found it to be 12. If the firm has a beta of 1.2, what is its required return?
Lisa Miller at Basket Wonders (BW) is attempting to determine the rate of return required by their stock investors. Lisa is using a 5% Risk free rate (rf) and a long-term market expected rate of return of 8%. A stock analyst following the firm has calculated that the firm beta is 1.3. What is the required rate of return on the stock of Basket Wonders?
You are asked to analyze The Haus of Us, a local manufacturer of house decor and accessories. Last year, the company distributed P2.00 per share dividend. The company has a beta of 1.2, the risk market return of 13% and the risk free rate of 6%. Required: Now assume that the stock is currently selling at P30.50 per share. What is the expected rate of return on the stock?
(CHAPTER 14) You researched Turnkey Investment's financial data and gathered the following information: Current price per share of stock = $105 Expected market portfolio return = 10.1% financial reports on the screen Dividend per share paid just recently = $4.69 Risk-free interest rate = 3.7% Expected annual growth of dividend per share = 5% Stock Beta = 1.37 Calculate the company's cost of equity using the Capital Asset Pricing Model approach. Your answer should be in percent, not in decimals: e.g., 10.23 rather than 0.1023. Do NOT use "%" in your answer. Increase decimal places for any intermediate calculations, from the default 2 to 6 or higher, and only round your final answer to TWO decimal places: for
Suppose the market risk premium is 6% and the risk-free interest rate is 6%. Using the data in the table, calculate the expected return of investing in a. Starbucks' stock. b. Hershey's stock. c. Autodesk's stock. Why don't all investors hold Autodesk's stock rather than Hershey's stock
In an economy where the risk-free interest rate is 19% and the expected return of the market is 25%, the beta coefficients of A, B, C and D stocks and the expected returns announced by the companies are as follows. According to the Financial (Capital) Assets Pricing Model c) Calculate the expected return rates of the shares.d) Determine which stocks can be invested by comparing the expected return announced by the company with the expected return you calculated.
Your broker has recommended that you purchase stock in Beacan, Inc. Beacan recently paid its annual dividend ($7.00). Dividends have consistently grown at a rate of 2.50%. Analysts estimate that the stock has a beta of 1.42. The current risk-free rate is 2.80% and the market risk premium (RM - RF) is 6.50%. Assuming that CAPM holds, what is the intrinsic value of this stock?

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