Consid. Draw the security market line for each of the following conditions: a. (1) RFR 0.08; R(proxy)=0.12 (2) R0.06; R(true) = 0.15 b. Rader Tire has the following results for the last six periods. Calculate and compare the betas using cach index. RATES OF RETURN Proxy Specific Indes Rader Tire True General Indea Period 29 12 15 12 10 13 -12 -9 -8 17 14 18 20 25 28 -5 -10 0 c. If the current period return for the market is 12 percent and for Rader Tire it is 11 percent, are superior results being obtained for either index beta?er the following data for two risk factors (1 and 2) and two securities (j and l): λ0 = 0.05 bj1 = 0.80 λ1 = 0.02 bj2 = 1.40 λ2 = 0.04 bl1 = 1.60 bl2 = 2.25. a. Compute the expected returns for both securities. b. Suppose that security j is currently priced at $22.50 while the price of security l is $15.00. Further, it is expected that both securities will pay a dividend of $0.75 during the coming year. What is the expected price of each security one year from now?

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