1-a) Investment X has a beta of 1.0. The risk free rate is 2% and current market

Question

1-a) Investment X has a beta of 1.0. The risk free rate is 2% and current market return is 8%. When should I purchase this investment...when the expected returnis?

8.1%

7%

6%

2%

1-b)Investment X has been reanalyzed and now shows a beta of .8. The risk free rate is 2% and current market return is 8%. What is the required return?

10%

8%

6.8%

8.4%

1-c)Your sister turned 35 today and is putting together a financial retirement plan. She will save $7200 per year, has $100,000 in savings now and expects a 7% return. She plans to retire in 30 years at age 65. She plans to lve for 25 years after retirement. At retirement she wll shift her investments to funds that yield 6%. Under these assumptions how much can she spend each year for the 25 years of retirement and have a 0 balance at the the end of the year 25?

114,968

112,751

104,112

57,653

8.1%

7%

6%

2%

Explanation / Answer

1.

Given,

Beta = B= 1.0

Risk free rate = Rf =2%

market rate =Rm = 8%

Required return Ke = Rf +B(Rm-Rf)

=> 2%+1(8-2) = 2%+6% = 8%.

if Beta is 0.8

Ke = 2%+0.8(6) = 2%+4.8% = 6.8%

Note: Please post one question at a time.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.