Suppose that the Treasury bill rate is 6% rather than 2%. Assume that the expect
ID: 2621689 • Letter: S
Question
Suppose that the Treasury bill rate is 6% rather than 2%. Assume that the expected return on the market stays at 10%. Use the following information.
Stock
Beta (?)
Dow Chemical
1.78
Bank of America
1.54
Ford
1.53
Exxon Mobil
0.98
Starbucks
0.95
IBM
0.80
Newmont Mining
0.75
Pfizer
0.66
Walmart
0.42
Heinz
0.40
a.
Calculate the expected return from Pfizer. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Expected return
%
b.
Find the highest expected return that is offered by one of these stocks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Highest expected return
%
c.
Find the lowest expected return that is offered by one of these stocks. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Lowest expected return
%
Suppose that the Treasury bill rate is 6% rather than 2%. Assume that the expected return on the market stays at 10%. Use the following information.
Explanation / Answer
E(r) = RFR + Beta * ( Market Rate -RFR) from CAPM
Stock
E(r)
Dow Chemical
13.12
Bank of America
12.16
Ford
12.12
Exxon Mobil
9.92
Starbucks
9.8
IBM
9.20
Newmont Mining
9.00
Pfizer
8.64
Walmart
7.62
Heinz
7.60
E(r) of Pfizer = 8.64%
Highest E(r) = 13.12% for Dow chemicals
Lowest E(r) =7.60% for Heinz
Stock
E(r)
Dow Chemical
13.12
Bank of America
12.16
Ford
12.12
Exxon Mobil
9.92
Starbucks
9.8
IBM
9.20
Newmont Mining
9.00
Pfizer
8.64
Walmart
7.62
Heinz
7.60
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