As a result of The risk-free your research, your expected rate of return on BDK
ID: 2797917 • Letter: A
Question
As a result of The risk-free your research, your expected rate of return on BDK stock is 20% interest rate is 2% and the required return on the market index is 12%, 6. BDK's beta is 1.5. According to the Capital asset pricing Model, A. you should purchase this stock B. the market is not in equilibrium C. D. BDK's historical rate ofretum is 50% more volatile than average all of the above 7. The DJIA is a measure of A. The market index of 30 large blue chip stocks B. The market index of 500 stocks included in Standard&Poor; C The market index of NYSE traded stocks D. The market index of NASDAQ traded stocks 8. A diversified portfolio of U.S. stocks should have A. market risk only B. unique risk only C. both market and unique risk D. no risk 9. A security market line has an intercept and slope of.01 and.09. This implies that A. the risk-free interest rate is.01 A. the market risk premium is equal to .09 B. the market required return is.10 C. all of the above 10·The current price of Pfizer stock is $35.00 per share. Earning next year is expected to be $2.00 per share and it should pay a $1.00 dividend each share. The industry P/E multiple is 25 times on average. What price would you expect for B&D; stock next year? A. $25.00 B. $35.00 C. $50.00 D. none of the above; the correct answer is 11. If you expect the market to decrease which of the following portfolios should you purchase? A. a portfolio with a beta of 2.0 B. a portfolio with a beta of 1.0 C. a portfolio with a beta of 0 D. a portfolio with a beta of -0.5 12. is a statistical measure of the relationship between any two series numbers. A. Coefficient of variation B. Standard deviation C. Correlation coefficient D. ProbabilityExplanation / Answer
The correct answer is B.
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We first need to find required rate of return of expected return using CAPM model.
Capital asset pricing is used to calculate required rate of return
Required rate of return = Risk free rate of return + Beta( Market return - Risk free return)
Where,
Risk free rate of return= 0.02
Beta= 1.5
Market return= 0.12
Let’s put all the values in the formula
Required rate of return = 0.02+1.5(0.12-0.02)
= 0.02 + 1.5(0.1)
= 0.02 + 0.15
= 0.17
So the required rate of return is 17%
The market is not in equilibrium.
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Hope this answer your query.
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