1.) The expected return on Kiwi Computers is 16.6 percent. If the risk-free rate
ID: 2783494 • Letter: 1
Question
1.) The expected return on Kiwi Computers is 16.6 percent. If the risk-free rate is 4 percent and the expected return on the market is 10 percent, then what is Kiwi's beta?
A.) 2.10
B.) 1.26
C.) 3.15
D.) 2.80
2.) The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Kiwi is 1.7, then what is the risk-free rate?
A.) 4.5%
B.) 5.0%
C.) 5.5%
D.) 6.0%
3.) The expected return on KarolCo. is 16.5 percent. If the risk-free rate is 5 percent and the beta of KarolCo is 2.3, then what is the risk premium on the market?
A.) 7.5%
B.) 2.5%
C.) 5.0%
D.) 10.0%
PLEASE SHOW WORK. THANKS SO MUCH IN ADVANCE!
Explanation / Answer
Expected return=Risk free rate+Beta*(Market rate-Risk free rate)
1.
16.6=4+Beta*(10-4)
Hence beta=(16.6-4)/(10-4)=2.10(A)
2.
17.9=Rf+1.7(13-Rf)
17.9=Rf+22.1-1.7Rf
Rf=(22.1-17.9)/(1.7-1)=6%
3.
16.5=5+2.3(RM-5)
Rm=(16.5-5)/2.3+5=10%
Hence risk premium=Market rate-Risk free rate
=(10-5)=5%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.