Project #44997 - Chapter 10

1. 

Suppose Netflix, Inc., has a beta of 3.92. If the market return is expected to be 12.40 percent and the risk-free rate is 5.00 percent, what is Netflix' risk premium? (Round your answer to 2 decimal places.)

  

  Netflix' risk premium  %  
 
 
2.  
 

You own $19,432 of Human Genome stock that has an assumed beta of 3.76. You also own $10,063 of Frozen Food Express (assumed beta = 1.88) and $5,205 of Molecular Devices (assumed beta = 0.60).

  
What is the beta of your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  
  Portfolio beta   

 

3.  

Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 2 decimal places.)

  

  Economic State   Probability   Return
  Fast growth   0.20   55  %
  Slow growth   0.58   22  
  Recession   0.22   –33  

  

  Expected return  %  

 

 

4.  

If the risk-free rate is 7.00 percent and the risk premium is 8.0 percent, what is the required return?(Round your answer to 1 decimal places.)

  

  Required return

 %  

 

 

5.  

The average annual return on an Index from 1986 to 1995 was 13.80 percent. The average annual T-bill yield during the same period was 5.10 percent.

  

What was the market risk premium during these ten years? (Round your answer to 2 decimal place.)

  

  Average market risk premium  %  

 

 

6. 

 

Suppose Universal Forest’s current stock price is $44.50 and it is likely to pay a $0.55 dividend next year. Since analysts estimate Universal Forest will have a 8.8 percent growth rate, what is its required return? (Round your answer to 2 decimal places.)

  

  Required return

 %  

 

7.   

You have a portfolio with a beta of 1.69. What will be the new portfolio beta if you keep 86 percent of your money in the old portfolio and 14 percent in a stock with a beta of 0.96? (Do not round intermediate calculation and round your answer to 2 decimal places.)

  

  New portfolio beta   

 

8.

 

You have assigned the following values to these three firms:

  

  Price   Upcoming Dividend   Growth    Beta  
  Estee Lauder $ 48.00         $ 0.70       8.70  %   0.97  
  Kimco Realty   39.00           1.69       13.00     1.36  
  Nordstrom   7.00           0.80       7.00     1.09  

  

Assume that the market portfolio will earn 15.40 percent and the risk-free rate is 4.40 percent.

   

Compute the required return for each company using both CAPM and the constant-growth model. (Do not round intermediate calculations and round your final answers to 2 decimal places.)

  

  CAPM Constant-growth model
  Estee Lauder required return  %    %  
  Kimco Realty required return  %    %  
  Nordstrom required return  %    %  

 
 
 
9.  

Hastings Entertainment has a beta of 0.39. If the market return is expected to be 15.60 percent and the risk-free rate is 7.60 percent, what is Hastings’ required return? (Round your answer to 2 decimal places.)

  
  Hastings’ required return  %  

 

 

 

10.  

Nanometrics, Inc., has a beta of 3.21. If the market return is expected to be 10.20 percent and the risk-free rate is 4.20 percent, what is Nanometrics’ required return? (Round your answer to 2 decimal places.)

  

  Nanometrics’ required return  %  

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