Author Question: Security A has an expected rate of return of 29.8 percent and a beta of 3.1. Security B has a beta ... (Read 62 times)

faduma · **on:** Jul 11, 2018

Security A has an expected rate of return of 29.8 percent and a beta of 3.1. Security B has a beta of 1.70. If the
Treasury bill rate is 5 percent, what is the expected rate of return for Security B?

What will be an ideal response?

Question 2

Firms attempt to price bonds so that at issue they sell for the:

A) face value.
B) coupon value.
C) firm value.
D) same price as shares of preferred stock.

lauravaras · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

Use A to determine the market risk premium.
.298 = .05 + 3.1(market return - .05)
.248 = (3.1 market return) - .155
.403/3.1 = .13 = market return
Return on B = .05 + 1.7(.13 - .

Answer to Question 2

A