The beta for ABM Industries is 1.50. Assuming that the nominal risk-free rate is 6.0% and that the return to the market is 9.0%, what is ABM’s required return?

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Instructions: Calculate each exercise. Highlight the answer and provide explanations (100 words) to each of the answers along with any relevant calculations to receive credit. Your part in completing the assignment is to demonstrate an understanding and application of the concepts covered. 

 

1. A good measure of an investor’s risk exposure if she/he only holds a single asset in her portfolio is:

a. The expected value of the asset’s returns.

b. The standard deviation of possible returns on the asset.

c. The correlation coefficient with the market portfolio.

d. The normal probability distribution function.

2. The beta for ABM Industries is 1.50. Assuming that the nominal risk-free rate is 6.0% and that the return to the market is 9.0%, what is ABM’s required return?

a. 7.5%

b. 18.4%

c. 10.5%

d. 3.2%

3. Koda’s Manufacturing has a required return of 9.50%. If the market return is 13.0% and the nominal risk-free rate is 6.0%, what is Koda’s beta?

a. 0.5%

b. 8.3%

c. 7.2%

d. 2.2%

4. Which of the following items reflects the time value of money?

a. Real risk-free rate.

b. Inflation premium.

c. Default risk premium.

d. Liquidity premium.

Use the following data to answer questions 5 and 6. Assume the following premiums reflect current market conditions:

 r* = 3.15%;

 IP (1-year bonds) = 2.35%;

 IP (3-year bonds) = 2.65%;

 IP (5-year bonds) = 2.90%;

 DRP (AAA corporate bonds) = 0.60%;

 DRP (AA+ corporate bonds) = 0.85%;

 LP (AAA corporate bonds) = 0.22%;

 LP (AA+ corporate bonds) = 0.30%;

 MRP = 0.1% × (t − 1) where t is the number of years to maturity.

5. Calculate the interest rate for a 1-year AA+ corporate bond.

a. 3.52%

b. 10.48%

c. 6.65%

d. 9.75%

6. Calculate the interest rate for a 5-year AA+ corporate bond.

a. 3.52%

b. 7.60%

c. 5.35%

d. 2.75%

 

 

Attachments:

Expert's Answer

653 Times Downloaded

Related Questions

. Introgramming & Unix Fall 2018, CRN 44882, Oakland University Homework Assignment 6 - Using Arrays and Functions in C

DescriptionIn this final assignment, the students will demonstrate their ability to apply two ma

. The standard path finding involves finding the (shortest) path from an origin to a destination, typically on a map. This is an

Path finding involves finding a path from A to B. Typically we want the path to have certain properties,such as being the shortest or to avoid going t

. Develop a program to emulate a purchase transaction at a retail store. This program will have two classes, a LineItem class and a Transaction class. The LineItem class will represent an individual

Develop a program to emulate a purchase transaction at a retail store. Thisprogram will have two classes, a LineItem class and a Transaction class. Th

. SeaPort Project series For this set of projects for the course, we wish to simulate some of the aspects of a number of Sea Ports. Here are the classes and their instance variables we wish to define:

1 Project 1 Introduction - the SeaPort Project series For this set of projects for the course, we wish to simulate some of the aspects of a number of

. Project 2 Introduction - the SeaPort Project series For this set of projects for the course, we wish to simulate some of the aspects of a number of Sea Ports. Here are the classes and their instance variables we wish to define:

1 Project 2 Introduction - the SeaPort Project series For this set of projects for the course, we wish to simulate some of the aspects of a number of