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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 73 times)

faduma

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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.


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lauravaras

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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


faduma

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Reply 2 on: Jul 11, 2018
Gracias!

cassie_ragen

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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