The rate of return on the risk-free asset is 3 percent. What is the expected return of the overall stock market if the market risk premium is 5 percent?
(Continuing from the previous problem, note that BFA Inc. has a beta of 1.3. What is the required rate of return for the BFA Inc.? (Use the market data, e.g. risk-free rate, etc. from the previous problem.) the answer to this is 9.5%)
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The required rate of return for Mallwart is 12 percent. The risk-free rate is 4 percent and the market risk premium is 5 percent. Estimate the beta for the Mallwart stock. Now, assume that all other items remain the same but the risk-free rate rises to 6 percent. What will be the required rate of return on Mallwart stock after this change in the risk-free rate?
|Economy Growth State||Probability Pi||Cash Flow Xi|
expected value of cash flows is 7,300
What is the variance of the cash flows?