Blog

By definition, the beta of the market portfolio is ___________.

Suppose the real risk-free rate is 4.8%,  the average future inflation rate is  2.4%, and a maturity premium of 0.1% per year to maturity applies, i.e., MRP =  0.1%(t), where t is the years to maturity.  What rate of return would you  expect on a 4-year Treasury security, assuming the pure expectations theory is NOT valid?

A stock has an expected return of 18.7 percent.  The beta of the stock is 2.32 and the risk-free rate is 1.5 percent.  What is the market risk premium?

XYZ Corp.’s union is striking. In addition XYZ Corp. is currently being sued for product infringement by several other companies. This is an example of ______________.

The risk-free rate is 3.4 percent.  Stock A has a beta = 1.8 and Stock B has a beta = 1.1. Stock A has a required return of 7 percent.  What is Stock B’s required return?

Given the following data, find the expected rate of inflation during the next year. ·         r* = real risk-free rate = 4.60%. ·         Maturity risk premium on 10-year T-bonds = 2%.  It is zero on 1-year bonds, and a linear relationship exists. ·         Default risk premium on 10-year, A-rated bonds = 1.5%. ·         Liquidity premium = 0%. ·         Going interest rate on 1-year T-bonds = 6.70%.

You observe the following yield curve for Treasury securities: Maturity             Yield 1 Year                2.90% 2 Years              4.30% 3 Years              5.20% 4 Years              5.50% 5 Years              6.10% Assume that the pure expectations hypothesis holds.  What does the market expect will be  the yield on 3-year securities, 2 year from today?

The risk-free rate is 3 percent.  Stock A has a beta = 1.1 and Stock B has a beta = 1.9. Stock A has a required return of 8.3 percent.  What is Stock B’s required return?

Assume the risk-free rate is 2% and that the market risk premium is 6.5%.   If a stock has a required rate of return of 14%, what is its beta?

The risk-free rate is 3.4 percent.  Stock A has a beta = 1.8 and Stock B has a beta = 1.1. Stock A has a required return of 7 percent.  What is Stock B’s required return?