Equation for the security market line
The risk-free rate is 7 percent, and the expected return on the market portfolio is 12 percent. What is the equation for the security market line (SML)?
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When you use a historical risk premium as your expected future risk premiums, what are the assumptions that you are making about investors and markets?
Assuming the CAPM applies, if the market's expected return is 13 percent, the risk-free rate is 8 percent, and stock A's required rate of return is 16 percent, what is the stock's beta coefficient?
It is planning a leveraged buyout, where it will increase its debt/equity ratio to 8. If the tax rate is 40%, what will the beta of the equity in the firm be after the LBO?
Using the current system, estimated manufacturing overhead costs per unit are less for the deluxe door ($80 per unit) than the standard door ($120 per unit). What is a likely explanation for this?
Moe Corporation is considering several securities. The rate on Treasury bills is currently 8.25 percent, and the expected return for the market is 11.5 percent.
You replicate the regression using weekly returns over the same period and arrive at a beta estimate of 1.60. How would you reconcile the two estimates?
Soon after beginning the year-end audit work on March 10 at Engone Company, the auditor has the following conversation with the controller.
Calculate the expected rate of return for each portfolio manager and compare the actual returns with the expected returns. Based upon your calculations, select the manager with the best performance.
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