You own $11,040 of Denny’s Corp stock that has an assumed beta of 2.94. You also
ID: 2497571 • Letter: Y
Question
You own $11,040 of Denny’s Corp stock that has an assumed beta of 2.94. You also own $19,665 of Qwest Communications (assumed beta = 1.91) and $3,795 of Southwest Airlines (assumed beta = 0.81). Assume that the market return will be 12.0 percent and the risk-free rate is 7.0 percent.
What is the risk premium of each stock? (Round your answers to 2 decimal places.)
What is the risk premium of the portfolio? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
You own $11,040 of Denny’s Corp stock that has an assumed beta of 2.94. You also own $19,665 of Qwest Communications (assumed beta = 1.91) and $3,795 of Southwest Airlines (assumed beta = 0.81). Assume that the market return will be 12.0 percent and the risk-free rate is 7.0 percent.
Explanation / Answer
Solution.
What is the market risk premium.
Market risk premium is equal to the expected return on an investment minus the risk-free rate. The risk-free rate is the minimum rate investors could expect to receive on an investment if it invested in else where..
Market risk premium % = 12.0% - 7.0% = 5%
ii. Calculation of What is the risk premium of each stock
iii. What is the risk premium of the portfolio ...
Particulars Calculation Percentage Denny’s risk premium 2.940(12%-7%) 14.700% Qwest’s risk premium 1.91(12%-7%) 9.5% Southwest Airlines risk premium 0.81(12%-7%) 4%Related Questions
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