Suppose that the Treasury bill rate is 6% and that the expected return on the ma

ID: 2642650 • Letter: S

Question

Suppose that the Treasury bill rate is 6% and that the expected return on the market is 2%. Assume
that the expected return on the market stays at 10%. Use the following information.

Calculate the expected return from H. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Find the highest expected return that is offered by one of these stocks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Find the lowest expected return that is offered by one of these stocks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Assume that the expected market return stays at 10%. Would C offer a higher or lower expected return if the Treasury bill interest rate were 6% rather than 2%?

Suppose that the Treasury bill rate is 6% and that the expected return on the market is 2%. Assume
that the expected return on the market stays at 10%. Use the following information.

Explanation / Answer

E(r) = RFR + Beta * ( Market Rate -RFR) from CAPM

Stock

E(r)

Dow Chemical

13.12

Bank of America

12.16

Ford

12.12

Exxon Mobil

9.92

Starbucks

9.8

IBM

9.20

Newmont Mining

9.00

Pfizer

8.64

Walmart

7.62

Heinz

7.60

E(r) of Pfizer = 8.64%

Highest E(r) = 13.12% for Dow chemicals

Lowest E(r) =7.60% for Heinz