My first 2 are right but second two are wrong The following table shows betas fo

Question

My first 2 are right but second two are wrong

The following table shows betas for several companies. Calculate each stock’s expected rate of return using the CAPM. Assume the risk-free rate of interest is 7%. Use a 9% risk premium for the market portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

18 20 10 12

The following table shows betas for several companies. Calculate each stock’s expected rate of return using the CAPM. Assume the risk-free rate of interest is 7%. Use a 9% risk premium for the market portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Explanation / Answer

Based on CAPM Equation,

Cost of Capital = Risk free rate + Beta * Market risk premium

(i) Cost of capital = 7% + (1.19 * 9%) = 17.71%

(ii) Cost of capital = 7% + (1.41 * 9%) = 19.69%

(iii) Cost of capital = 7% + (0.36 * 9%) = 10.24%

(iv) Cost of capital = 7% + (0.50 * 9%) = 11.50%

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

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