$75,000 investment and want to invest in 15 undervalued stock. Calculate the req
ID: 2645925 • Letter: #
Question
$75,000 investment and want to invest in 15 undervalued stock.
Calculate the required rate of return using the Capital Asset Pricing Model (CAPM). Thanks in advance.
Rating
Stock Price
Total 2003 Dividends
5 Year Dividend Growth
Beta
1
$12.05
$0.95
0.65%
0.65
2
$28.02
$0.00
-100.00%
2.3
3
$17.75
$0.00
0.00%
1.89
4
$92.45
$1.30
6.25%
1.2
5
$63.79
$0.75
0.95%
1.35
6
$71.11
$6.00
5.00%
.67
7
$10.00
$0.00
0.00%
1.78
8
$49.51
$0.68
0.75%
0.95
9
$101.00
$5.00
0.38%
0.92
10
$39.78
$0.00
-90.00%
1.5
11
$29.75
$2.00
2.25%
0.85
12
$73.09
$0.00
-1.00%
0.38
13
$20.39
$6.00
5.25%
0.71
14
$18.25
$1.00
8.00%
1
15
$7.00
$1.35
8.85%
0.73
Treasury Bond Rate
4.30%
Return on the Bond Market
11.90%
Rating
Stock Price
Total 2003 Dividends
5 Year Dividend Growth
Beta
1
$12.05
$0.95
0.65%
0.65
2
$28.02
$0.00
-100.00%
2.3
3
$17.75
$0.00
0.00%
1.89
4
$92.45
$1.30
6.25%
1.2
5
$63.79
$0.75
0.95%
1.35
6
$71.11
$6.00
5.00%
.67
7
$10.00
$0.00
0.00%
1.78
8
$49.51
$0.68
0.75%
0.95
9
$101.00
$5.00
0.38%
0.92
10
$39.78
$0.00
-90.00%
1.5
11
$29.75
$2.00
2.25%
0.85
12
$73.09
$0.00
-1.00%
0.38
13
$20.39
$6.00
5.25%
0.71
14
$18.25
$1.00
8.00%
1
15
$7.00
$1.35
8.85%
0.73
Treasury Bond Rate
4.30%
Return on the Bond Market
11.90%
Explanation / Answer
Using Capital Asset Pricing Model,
Required Rate of Return = Risk-free return + Beta X (Market return - Risk-free return)
Risk-free return = 4.30%
Market Return = 11.90%
Required rate of return of each stock is as follows:
Rating Beta Required rate of return 1 0.65 9.24% 2 2.30 21.78% 3 1.89 18.66% 4 1.20 13.42% 5 1.35 14.56% 6 0.67 9.39% 7 1.78 17.83% 8 0.95 11.52% 9 0.92 11.29% 10 1.50 15.70% 11 0.85 10.76% 12 0.38 7.19% 13 0.71 9.70% 14 1.00 11.90% 15 0.73 9.85%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.