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33. CAPM Required Return A company has a beta of 3.75. If the market return is expected
to be 20 percent and the risk-free rate is 9.5 percent, what is the company's required return?
34. Company Risk Premium A company has a beta of 4.5. If the market return is expected to
be 14 percent and the risk-free rate is 7 percent, what is the company's risk premium?
35. Company Risk Premium A company has a beta of 2.91. If the market return is expected
to be 16 percent and the risk-free rate is 4 percent, what is the company's risk premium?
36. Portfolio Beta You have a portfolio with a beta of 0.9. What will be the new portfolio beta
if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of
1.5?
37. Portfolio Beta You have a portfolio with a beta of 1.25. What will be the new portfolio
beta if you keep 80 percent of your money in the old portfolio and 20 percent in a stock with a
beta of 1.75?
38. Stock Market Bubble If the NASDAQ stock market bubble peaked at 3,750, and two and
a half years later it had fallen to 2,200, what would be the percentage decline?
39. Stock Market Bubble If the Japanese stock market bubble peaked at 37,500, and two
and a half years later it had fallen to 25,900, what was the percentage decline?
40. Expected Return A company's current stock price is $84.50 and it is likely to pay a $3.50
dividend next year. Since analysts estimate the company will have a 10 percent growth rate, what
is its expected return?
41. Expected Return A company's current stock price is $65.40 and it is likely to pay a $2.25
dividend next year. Since analysts estimate the company will have an 11.25 percent growth rate,
what is its expected return?
42. Expected Return Risk Compute the standard deviation of the expected return given
these three economic states, their likelihoods, and the potential returns:
43. Expected Return Risk Compute the standard deviation of the expected return given
these three economic states, their likelihoods, and the potential returns:
44. Under/Over-Valued Stock A manager believes his firm will earn a 16 percent return next
year. His firm has a beta of 1.5, the expected return on the market is 14 percent, and the risk-free
rate is 4 percent. Compute the return the firm should earn given its level of risk and determine
whether the manager is saying the firm is undervalued or overvalued.
45. Under/Over-Valued Stock A manager believes his firm will earn a 12 percent return next
year. His firm has a beta of 1.2, the expected return on the market is 8 percent, and the risk-free
rate is 3 percent. Compute the return the firm should earn given its level of risk and determine
whether the manager is saying the firm is undervalued or overvalued.
46. Under/Over-Valued Stock A manager believes his firm will earn a 7.5 percent return
next year. His firm has a beta of 2, the expected return on the market is 5 percent, and the risk-
free rate is 2 percent. Compute the return the firm should earn given its level of risk and
determine whether the manager is saying the firm is undervalued or overvalued.
47. Portfolio Beta You own $2,000 of City Steel stock that has a beta of 2.5. You also own
$8,000 of Rent-N-Co (beta = 1.9) and $4,000 of Lincoln Corporation (beta = 0.25). What is the
beta of your portfolio?
48. Portfolio Beta You own $1,000 of City Steel stock that has a beta of 1.5. You also own
$5,000 of Rent-N-Co (beta = 1.8) and $4,000 of Lincoln Corporation (beta = 0.9). What is the
beta of your portfolio?
49. Expected Return and Risk Compute the standard deviation given these four economic
states, their likelihoods, and the potential returns:
50. Expected Return and Risk Compute the standard deviation given these four economic
states, their likelihoods, and the potential returns:
51. Expected Return and Risk Compute the standard deviation given these four economic
states, their likelihoods, and the potential returns:
52. Risk Premiums You own $14,000 of Diner's Corp. stock that has a beta of 2.1. You also
own $14,000 of Comm Corp. (beta = 1.3) and $12,000 of Airlines Corp. (beta = 0.6). Assume that
the market return will be 15 percent and the risk-free rate is 6.5 percent. What is the total risk
premium of the portfolio?
