The slope of the SML remains constant. How would this affect rM and ri? The slope of the SML does not remain constant. How would these changes affect ri? The portfolio beta is equal to 1. Now suppose you have decided to sell one of the stocks in your portfolio with a beta equal to 1. The stock has a beta equal to 0. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years?
That is, what is P3? Search this Question Share. May 24, , The basic variables surrounding. If the firm had used the weighted average cost calculated in part b, what actions. P9—2 Cost of debt using both methods Currently, Warren Industries can sell year,.
As a result of. Find the net proceeds from sale of the bond, N d. Calculate the before-tax and after-tax costs of debt. Use the approximation formula to estimate the before-tax and after-tax costs of.
Compare and contrast the costs of debt calculated in parts c and d. The weighted average cost is to be measured by using the following. Preferred stock Eight percent annual dividend preferred stock having a par. And, all the probabilities must add up to 1. So in the example, the manager needs to decide the likelihood of each of these events.
Using focus group results, the manager decides that there is a 60 percent chance of high acceptance, and since there are only two alternatives, there is a 40 percent chance of low acceptance. You now know you have covered all possible alternatives, since. To calculate the expected return of the new product introduction, an estimate of the return is needed for each possible outcome. For this example, assume that there will be a return of 20 percent if there is high acceptance, and a return of only 6 percent if there is low acceptance.
With this information, you can calculate the expected return. Compare these estimates to the estimates in the three challenge problems. In this case, you were to assign a probability to each of the possible outcomes, and you would assign expected returns associated with each of those outcomes.
You would not rely on any past data. In other words, if you possess historical results, and you believe that those results are a good indicator of future expectations, you can derive future expected return by extrapolating those past results to the future. However, if you do not have historical results, or you do not believe that history is a good indicator of future performance, expected return is derived by the weighted average of all possible returns, weighted by their own probabilities.
More formally, it can be written as. This formula for expected return of security i says to sum the products of the return of security i for each outcome n times the probability of outcome n.
As illustrated in the challenges, the same principle applies to stock returns. Suppose an investor is considering the purchase of a new firm's stock.
As a new stock, there is little historical data to make any predictions regarding future returns. But the investor knows that there are four possible states of the economy over the next year: Each state of the economy is equally likely to occur, with a 25 percent chance of each. If the economy booms, then the stock will return 30 percent, if it is steady, the investor expects to earn 16 percent.
If the economy slows, the investor expects to earn only 8 percent, and if the economy goes bust, the stock will lose 10 percent. So the investor calculates the expected return as. Here again, the expected return under each state of the economy is assigned based on a prediction. One way to help formulate that prediction is to look for historical data on similar investments.
For instance, in Challenge C, although you did not have reliable historical data on the new technology fund, you elected to develop a set of possible outcomes based on the past performance of similar technology funds. As a next step, you may need to calculate the expected return on a portfolio of more than one investment.
To calculate the expected return of a portfolio simply compute the weighted average of the expected returns on all the assets in your portfolio, with each asset's return weighted by the proportion of the total portfolio each asset represents.
The animation below shows you how to compute the expected return of a portfolio. The formula notation in the animation is slightly different from the notation shown above, but it represents the same process. Would you like another example?
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finance homework help bonds beta expected returns Get finance help from Chegg now! finance guided textbook solutions, expert answers, definitions and sportwallpaper.tk Finance Homework Help? the return in the market is 10%, and the beta is 1.
Finance Homework Help Bonds Beta Expected Returns. Archives and past articles from the Philadelphia Inquirer, Philadelphia Daily News, and Philly. Interactive Online Calculator finance homework help bonds beta expected returns Sitemap for sportwallpaper.tk Welcome to the interactive Free Online Calculator Sitemap. Aug 12, · 5. The risk free rate is 7%, the return in the market is 10%, and the beta is What return must you receive to be satisfied that you are being fairly compensated for the risk of the firm? 6. What should a zero coupon bond maturing for $ in 9 years with a 7% market rate sell for? 7. Preferred stock has a dividend of $12 per year.5/5.
May 06, · Stock Y has a beta of and an expected return of percent. Stock Z has a beta of and an expected return of percent. Help With Finance Homework! PLEASE!? Stock Y has a beta of and an expected return of percent. Stock Z has a beta of and an expected return of percent. Finance Homework Help again Status: Open. The stock has a beta of and will pay a dividend of $ next year. The dividend is expected to grow by percent per year indefinitely. Preferred stock: 9, shares of percent preferred stock selling at $ per share. Market: A percent expected return, a percent risk-free rate, and a .