Stock A has a beta of 1.20, and its required return is 12.00%.Stock B's beta is 0.85. If the risk-free rate is 3.00%, the marketrisk premium is _____ and the required rate of return on B's stockis _____. (Use the CAPM for stock A to compute the market riskpremium and then the CAPM for stock B to get the stock Bâs requiredreturn)
10.50%; 11.925%
10.50%; 14.475%
7.50%; 9.375%
7.50%; 11.925%
7.50%; 14.475%
Stock A has a beta of 1.20, and its required return is 12.00%.Stock B's beta is 0.85. If the risk-free rate is 3.00%, the marketrisk premium is _____ and the required rate of return on B's stockis _____. (Use the CAPM for stock A to compute the market riskpremium and then the CAPM for stock B to get the stock Bâs requiredreturn)
10.50%; 11.925% | ||
10.50%; 14.475% | ||
7.50%; 9.375% | ||
7.50%; 11.925% | ||
7.50%; 14.475% |
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Related questions
1.
CAPM Required Return A company has a beta of.64. If the market return is expected to be 13.4 percent and therisk-free rate is 5.70 percent, what is the company's requiredreturn?
8.58%
16.33%
14.28%
10.63%
2.
P/E Ratio and Stock Price InternationalBusiness Machines (IBM) has earnings per share of $7.65 and a P/Eratio of 15.35. What is the stock price?
$46.00
$2.01
$117.43
$.50
3.
Suppose your firm is considering investing in a project with thecash flows shown below, that the required rate of return onprojects of this risk class is 10 percent, and that the maximumallowable payback and discounted payback statistic for the projectare 2 and 3 years, respectively.
| Time | 0 | 1 | 2 | 3 | 4 | 5 | 6 |
| CashFlow | -900 | 190 | 450 | 650 | 650 | 250 | 650 |
Use the PI decision rule to evaluate this project; should it beaccepted or rejected?
1.22%, accept
1.22%, reject
-122.00%, reject
122.12%, accept
4.
Compute the Payback statistic for Project X and recommendwhether the firm should accept or reject the project with the cashflows shown below if the appropriate cost of capital is 12 percentand the maximum allowable payback is 4 years.
| Time: | 0 | 1 | 2 | 3 | 4 | 5 |
| Cashflow: | -3,100 | 950 | 700 | 850 | 725 | 625 |
rev: 12_06_2012
3.83 years, Accept
2.83 years, Accept
3.83 years, Reject
2.83 years, Reject
