CHAP 7 HW EXCEL .xlsx - The market price of a security is...

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Market price of security $ 40.00 Security expected rate of return 13.0% Risk free rate of return 7.0% Market risk premium 8.0% Change in beta (x) 2 Solution Current security beta 0.75 New security beta 1.50 Current dividend $ 5.20 New expected rate of return on security 19.0% New price of security $ 27.37 The market price of a security is $40. Its expected rate o return is 13%. The risk-free rate is 7%, and the market r premium is 8%. What will the market price of the securi its beta doubles (and all other variables remain unchan Assume the stock is expected to pay a constant dividen perpetuity.
of risk ity be if nged)?
Assume the risk-free rate is 8% and the expected rate return on the market is 18%. A share of stock is now s for $100. It will pay a dividend of $9 per share at the en the year. Its beta is 1. What do investors expect the st sell for at the end of the year?
e of selling nd of tock to
Investment Return Beta ST govt 4.0% Market 12.0% 1.00 Start stock price $ 40.00 End stock price $ 41.00 Dividend $ 3.00 Stock beta -0.50 Solution Suppose the yield on short-term government securitie to be risk-free) is about 4%. Suppose also that the exp required by the market for a portfolio with a beta of 1 According to the capital asset pricing model: a. What is the expected return on the market portfolio b. What would be the expected return on a zero-beta s c. Suppose you consider buying a share of stock at a The stock is expected to pay a dividend of $3 next yea then for $41. The stock risk has been evaluated at bet stock overpriced or underpriced?
ies (perceived pected return is 12%. o? stock? a price of $40. ear and to sell ta = -0.5. Is the

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