User Account

All Pages

What is the current market risk premium

Assignment Help Financial Management
Reference no: EM131445343

You did some additional research, and also found the following values for each stock’s beta coefficient:

Beta Coefficient Stock A Stock B

0.7 1.4

Other current information is as follows:

--Current Risk-free Rate: 5%

--Current Market Rate: 12%

1. What type of risk are we now considering?

2. What is the current Market Risk Premium?

3. What is the required return for each stock suggested by CAPM?

4. Will diversification reduce the type of risk identified in #1 above?

5. Is there anything that can help to reduce this type of risk in a portfolio of stocks? If so, what.

6. Suppose that you invest $1,000 in Stock A, $1,500 in Stock B, and $2,500 in Stock C that has a beta of 2.0. Find your portfolio’s beta and required rate of return.

Reference no: EM131445343

Questions Cloud

Deposited the inheritance in savings account : After receiving an inheritance of $50,000 on her 21st birthday, Kelly deposited the inheritance in a savings account with an effective annual interest rate of 4%. She decided to make regular deposits, beginning with $1,000 on her 22nd birthday, and i..
What is your net dollar sales projection for this year : Dodge Ball Bearings had sales of 10,000 units at $70 per unit last year. The marketing manager projects a 20 percent increase in unit volume sales this year with a 10 percent price decrease (due to a price reduction by a competitor). Returned merchan..
How much would the bond be worth at that time : In March 2012, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $400 in March 2052, but investors would receive nothing until then. ..
What is the effective rate for the line of credit : Winegartner Cosmetics is setting up a line of credit at its bank for $5 million for up to two years. The interest rate is 7.19 percent and the loan agreement calls for an annual fee of 47 basis points on any unused balance for the year. If the firm b..
What is the current market risk premium : You did some additional research, and also found the following values for each stock’s beta coefficient: What type of risk are we now considering? What is the current Market Risk Premium? What is the required return for each stock suggested by CAPM?
What will the firms savings be from using the lockbox : Jennifer Electrical is evaluating whether a lockbox it is currently using is worth keeping. Management estimates that the lockbox reduces the mail float by 2.4 days and the processing by half a day. The bank charges $0.34 per processed check. Assume ..
Identify the tax consequences on the sale : You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. Prepare a memorandum to the client, recommending a type of business entity, including an appen..
What is the average amount of receivables : Receivables investment McEwan Industries sells on terms of 3/10, net 40. Total sales for the year are $661,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 84 days after their purchases. What is t..
Calculate chastains cash conversion cycle : Cash conversion cycle Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Calculate Chastain's cash conversion cycle.

Reviews

Write a Review

 

Financial Management Questions & Answers

  What would be the depreciation amount

In January 2010, Salem Corporation, purchased $350,000 of new MACRS 5-year property in the US. This equipment was placed in service May 1, 2010. Salem wants to take as much depreciation in 2010 as possible. Calculate the depreciation for 2010. If Sal..

  Sales promotions are expensive to administer

Sales promotions are expensive to administer and can be fraught with legal complications. Sales promotions yield their most positive results when carefully integrated with the overall advertising plan. Identify which of the sales promotion techniques..

  Determine ratio of mortgage payment to gross monthly income

Please calculate your loan application with 28/36% rule and show the clear and step-by-step calculation. Part A : Calculate the 28% rule [1] Determine the total monthly payment for principle and interest. Determine the ratio of mortgage payment to gr..

  Form of derivative contract

A survey by Fitch Ratings found that capital market participants felt that Credit Default Swaps, a form of derivative contract that pays off if the named underlier defaults on its debt obligations, are both more important as indicators of counterp..

  Annual cash flow is projected

We are examining a new project. We expect to sell 6,000 units per year at $74 net cash flow apiece for the next 10 years. In other words, the annual cash flow is projected to be $74 × 6,000 = $444,000. The relevant discount rate is 18 percent, and th..

  How much would judy earn from the cd

She is guaranteed a return of 4% on a four-year CD. How much would Judy earn from the CD? Which of the two alternatives offers the better return?

  CAPM has implications for expected returns and correlations

If CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently. Hint: recall that the CAPM has implications for expected returns, correlations, covariances and variances.

  Asset has had an arithmetic return

An asset has had an arithmetic return of 10.2 percent and a geometric return of 8.2 percent over the last 88 years. What return would you estimate for this asset over the next 9 years? 24 years? 40 years? (Do not round intermediate calculations. Ente..

  What is the firms times-interest-earned ratio

A firm has total interest charges of $10,000 per year, sales of $1 million, a tax rate of 40 percent, and a net profit margin of 6 percent. What is the firm's times-interest-earned ratio? show work

  Stock to the systematic and firm-specific components

Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 2.0% + 0.4RM + eA RB = –1.8% + 0.9RM + eB σM = 15%; R-square A = 0.30; R-square B = 0.22 Break down the variance of each stock to the sy..

  Increase the real rate

The CPI index increased from 244.4 to 255.9 over the year and the real rate is 4.33%. If you had $450 in the bank in the beginning of the year, how much do you have now?

  British thermal units

Where "MM" stands for one million and British Thermal Units (BTU).

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd