During the same time period, Company V earned 1.90 percent and Company M earned -3.60 percent. In return for this safety, the bonds return the lowest interest rate. a) Your portfolio is invested 40 per cent each in A and C, and 20 per cent in B. What would this position on the diagram imply about stock Z? The holding period return yield formula may be used to compare the yields of different bonds in your portfolio over a given time period. What will be the new portfolio beta if you keep 60 percent of your money in the old portfolio and 40 percent in a stock with a beta of 0.8? Which of the following are investor diversification problems? Efficient portfolio is a portfolio that is not dominated by any other portfolio. Using the CAPM, what is ABC’s expected return? What yield to maturity is the bond offering? Expected return The expected return on a risky asset, given a probability distribution for the possible rates of return. TC corporate bond with yield of 8.76 percent and B & O corporate bond with a yield of 5.99, under which conditions will an investor demand a smaller return on a bond, if a bonds yield to maturity use above its coupon rate, bond prices must decline at the same time, all of the following items would need to be included in the bond's indenture agreement except, which of these statements answers why bonds are known as fixed income securities, investors know how much they will receive in interest payments, when market interest rates rise we will expect an increase int he yield to maturity on an already outstanding bond, if the coupon rate equals 7% then a corresponding $1,000 face value bond, assume that a bond is quoted to be selling at a price equal to $93, per $100 of face value. The bond is currently selling at a price below its par value. A bond's yield is more accurately thought of as the effective rate of return based on the actual market value of the bond. Rank the following three stocks by their level of total risk, highest to lowest. the liquidity risk premium on the corporation's bond is 0.50 percent. The expected rate of return is the return on investment that an investor anticipates receiving. If you owned 500 shares of FedEx, what was your dollar return? The long-term government bond is expected to yield 4.8 percent and the U.S. Treasury bill is expected to yield 2.7 percent. Which of the bonds below would be most liquid? Stock A has a required return of 15%. Let’s take an example of a portfolio of stocks and bonds where stocks have a 50% weight and bonds have a weight of 50%. The security has no special covenants. The new appropriate discount rate will be 9 percent. FedEx Corp. stock ended the previous year with $165.30 per share. Which of these is the term for portfolios with the highest return possible for each risk level? Bondholders have a required rate of return of 12%p.a. At … Which of the following is a correct statement about the two stocks? It paid a $0.60 per share dividend last year. What is the average monthly return? This dividend will grow at 11 percent indefinitely. 2. Which of the following statements is correct regarding diversification? What would this position on the diagram imply about stock Z? The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. As soon as the announcement is made, the stock price increases $8 per share but then over the next hour the price falls resulting in a total increase of $11. Which of the following is a correct statement about the two stocks? this implies that, A 6 percent coupon bond with 12 years left to maturity is priced to offer a 6.5 percent yield to maturity. The market price of the bond is $910.00. Assume when plotting stock Z on a security market line diagram the stock would be found below the security market line. Their recent dividend was $.69. Dakota Corporation 15-year bonds have an equilibrium rate of return of 9 percent. A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. Which of the below is the best description of the effect of portfolio diversification? Assume that the maturity risk premium is zero. Which of the below is a measure of the sensitivity of a stock or portfolio to market risk? If the default risk premium and liquidity risk premium on a 10 year corporate bond is the same as that on the 20 year corporate bond, what is the current rate on a 10 year corporate bond? The average rate of return will give us a high-level view of the profitability of the project and can help us access if it is worth investing in the project or not. 23. Bond-rating agencies take into account a company's balance sheet and many other factors. You own $1,000 of City Steel stock that has a beta of 1. A corporate bond with a 5 percent coupon has 10 years left to maturity. JIM corporate bond with yield of 12.25 percent, IB corporate bond with yield of 4.49 percent. there is typically not much trading activity related to the security, the rate that a security would pay if no inflation were expected over its holding period, Assume the interest rate demanded on a bond issued by Ford is 7%. A firm does not pay a dividend. the maturity risk premium is 0.25 percent on two year securities and increase by 0.10 percent for each additional year … If you owned 400 shares of FedEx, what was your percent return? As mentioned in the section above, a Sharpe ratio of … Year-to-date, Company O had earned a 3.50 percent return. The y-intercept of the SML is equal to the risk-free interest rate, while the slope is equal to the market risk premium (the market’s rate of return minus the risk-free rate). If the risk-free rate is 3 percent and the market risk premium is 8 percent, what is the required return for the market? At the current stock price of $26.07, what is the return shareholders are expecting? It paid a $1.30 per share dividend last year. Year-to-date, Company O had earned a 3.60 percent return. What will be the new portfolio beta if you keep 60 percent of your money in the old portfolio and 40 percent in a stock with a beta of 0.8. Assume you borrow 100 apples and in 1 year you return 107 apples. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. Which of these investors earn returns from receiving dividends and from stock price appreciation? GEN has 10 million shares outstanding and a stock price of $89.25. The annual return on the S&P 500 Index was 11.5 percent. a corporations 10 years bond are currently yielding a return of 7.75 percent. If this bond pays its coupon payments semi annually and par value is $1,000 what is the bonds annual coupon rate? Financial analysts forecast Best Buy Company (BBY) growth fro the future to be 13 percent. week lecture chapter 15: the term structure of interest rate problem sets question under the expectations hypothesis, if the yield curve is upward-sloping, the Which of the following is the correct ranking from least risky to most risky? It ended last year at $145.50. His firm has a beta of 1.6, the expected return on the market is 11 percent, and the risk-free rate is 3 percent. Consider a portfolio comprised of four securities in the following proportions and with the indicated security beta. It paid a $0.60 per share dividend last year. The past four monthly returns for K and Company are 0.60 percent, -0.80 percent, 1.80 percent, and 2.70 percent. what is the default risk premium on the corporation's 10 year bonds? Firms can quite possibly change their stocks' risk level by substantially changing their business. Stock B has a required return of 26%. A stock with beta equal to 1 would most likely be considered, to be of about the same risk as the overall stock market, Shares of stock issued to employees that have limitations on when they can be sold are known as. The expected return on Stock A should be greater than that on B. e. The expected return on Stock B should be greater than that on A. Once you have completed the test, … What is the expected return of the portfolio? The current bond price will increase and interest rates on new bonds will decrease. Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. When people purchase a stock, they do not know what their return is going to be - either short term or in the long run. It is based on the idea of systematic risk (otherwise known as or non-diversifiable risk) and that investors need to be compensated for it in the for… It ended last year at $131.70. What is the standard deviation of monthly returns? Expected return is simply a measure of probabilities intended to show the likelihood that a given investment will generate a positive return, and what the likely return will be. Expected return = expected dividend yield + expected capital gains yield g P D g g P D rs 0 0 0 1 ^ *(1) In the above example, 0.05 0.0525 0.05 10.25% 40 *(1 ) 2.00*(1 0.05) 0 0 ^ g P D g rs where 5.25% is the expected dividend yield and 5% is the expected capital gains … What was the market risk premium during that year? The expected return of stocks is 15% and the expected return for bonds is 7%.Expected Return is calculated using formula given belowExpected Return for Portfolio = Weight of Stock * Expected Return for Stock + Weight of Bond * Expected Return for Bond 1. Portfolio Blue dominates Portfolio Purple, Which of these is defined as a combination of investment assets held by an investor. FedEx Corp. stock ended the previous year at $136.20 per share. The market has an expected rate of return of 12.6 percent. Discount bond: a bond that sells below its par value Premium bond: a bond that sell above its par value (2) Yield to maturity (YTM): the return from a bond if it is held to maturity Example: a 10-year bond carries a 6% coupon rate and pays interest semiannually. What will be the change in the bond's price in dollars? The "givens" in this formula are the probabilities of different outcomes and what those outcomes will return. A corporate bond with a 5.75 percent coupon has 15 years left to maturity. Which of these is similar to the capital market line, except that risk is characterized by beta instead of standard deviation? The dividend is expected to increase at a 20 percent rate for the next 3 years. What will be the change in the bond's price in percentage terms? American Eagle Outfitters (AEO) recently paid a $0.38 dividend. If you have a portfolio made up of 40 percent Company O, 40 percent Company V, and 20 percent Company M, what is your portfolio return? This is an example of a market overreaction. Which of the following describes what will occur as you randomly add stocks to your portfolio? determine the interest payment for the following bonds: 5.5 percent coupon corporate bond 6.45 percent coupon treasury note and a corporate zero coupon bond maturing in 10 years. Which of the following is the continual increase in the price level of a basket of goods or services? "zero Coupon Bonds" Quizlet - 06/2020. Afterwards, a more stable rate of 10 percent growth rate can be assumed. If you owned 400 shares of FedEx, what was your dollar return? Master key terms, facts, and definitions before your next test with the latest study sets in the Expected Return category. Which of these is a theory that describes the types of information that are reflected in current stock prices? The expected return is the amount of profit or loss an investor can anticipate receiving on an investment. taught by Chao Jiang at the University of Kansas. U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. The new appropriate discount rate will be 6.00 percent. An efficient portfolio, also known as an ‘optimal portfolio’, is one that provides that best expected return on a given level of risk, or alternatively, the minimum risk for a given expected return.A portfolio is a spread of investment products.. Cash flows for an investment for today, next year and the year after are forecast to be $4000, $5000 and $6600. In theory, this is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate. The past four monthly returns for K and Company are 3.40 percent, 2.30 percent, 0.80 percent, and -0.70 percent. Like many formulas, the expected rate of return formula requires a few "givens" in order to solve for the answer. Cooley Company's stock has a beta of 1.40, the risk-free rate is 4.25%, and the market risk premium is 5.50%. Compute the expected return given these three economic states, their likelihoods, and the potential returns: You have a portfolio with a beta of 1.25. a corporations 10 years bond are currently yielding a return of 7.75 percent. Assume a risk-averse investor holds a portfolio of bonds, because bonds are known to be less risky than stocks. Which of the following is the model that includes an equation that relates a stock's required return to an appropriate risk premium? Which of the debt contracts below would be associated with the biggest interest rate risk? Small Cap – Dimensional US Small Cap Index: 11.5%Bonds – Barclays US Aggregate Bond Index: 5.3%. the stock price should not be impacted because nothing fundamental about the company has been changed, and as there will be less funds generated to pay out future dividends. The larger the standard deviation, the higher the total risk. Answer: You should buy the bond since the actual price of the bond is lower than the price with your required rate. During the same period, Company V earned 1.70 percent and Company M earned -1.20 percent. Chapter 2: Bonds, stocks and other securities Try the multiple choice questions below to test your knowledge of this chapter. If the risk premium on this bond is equal to 5%, we would conclude that the risk-free rate is equal to. Which of these is the portion of total risk that is attributable to overall economic factors? At face value, the coupon rate and yield equal each other. The expected return is based on historical data, which may or may not provide reliable forecasting of future returns. Year-to-Date, Company O had earned a 2.30 percent return. Average Rate of Return = $1,600,000 / $4,500,000; Average Rate of Return = 35.56% Explanation of Average Rate of Return Formula. Discover free flashcards, games, and test prep activities designed to help you learn about Expected Return and other concepts. Our most popular study sets are an effective way to learn the things you need to know to ace your exams. Calculate the bond's default risk premium. For all securities, the inflation risk premium is 1.95 percent and the real interest rate is 3.65 percent. Currently the portfolio is invested in the following manner. During the same time period, Company V earned -2.50 percent and Company M earned 1.60 percent. The security's liquidity risk premium is .35 percent and maturity risk premium is .95 percent. The real rate of interest on the loan is equal to 4%. Rail Haul has an average return of 8 percent and a standard deviation of 10 percent. What is the standard deviation of monthly returns? Calculate the price of a 6.5 percent coupon bond with 27 years left to maturity and a market interest rate of 5 percent. The Vanguard fund had both a higher average annual return for the period and a lower standard deviation. The security has no special covenants. It has had a credit rating of BBB and a yield to maturity of 8.0 percent. the liquidity risk premium on the corporation's bond is 0.50 percent. Company X has a beta of 1.45. Risk is reduced without necessarily reducing the expected return. b. Calculate the security's equilibrium rate of return. Expected Return. The size of the firm measured as the current stock price multiplied by the number of shares outstanding is referred to as the firm's, Stock valuation model dynamics make clear that higher dividend growth rates lead to, All of the following are stock market indices except, Stock valuation model dynamics make clear that lower discount rates lead to, discounting the future dividends and future stock price appreciation. Given this information which of the following statements is correct? FedEx Corp. stock ended the previous year at $118.30 per share. They're customizable and designed to help you study and learn more effectively. Which of the following is a true statement? The market has an expected rate of return of 9.8 percent. As residual claimants, these investors claim any cash flows to the firm that remain after the firm pays all other claims. Sally would be best served to: Stock valuation model dynamics make clear that higher discount rates lead to, Stock valuation model dynamics make clear that lower dividend growth rates lead to, When residual cash flows are high, stock values will be, Why is it expected to be using higher discount rates to discount stock dividend payments compared to the discount rates used to discount bond coupon payments, because the cash flows resulting from owning a stock are typically more risky than the cash flows resulting from owning a bond. The long-term government bond is expected to yield 4.5 percent and the U.S. Treasury bill is expected to yield 3.4 percent. U.S. Stocks – S&P 500: 8.2%International – MSCI EAFE: 4.4%U.S. A) 13% b-1) What is the variance of this portfolio? Treasury bills, long-term Treasury bonds, stocks. the expected return on default-free bonds. Assume when plotting stock Z on a security market line diagram the stock would be found above the security market line. Normally, bond investors account for call risk by figuring the yield-to-call, which is the percentage return the bond will pay up to the call date. Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.? Understand the expected rate of return formula. The formula is the following. Most common stocks are positively correlated with each other because they are impacted by the same economic factors. All of these are investor diversification problems. Which of the following statements is correct regarding this information? What is the change in price the bond will experience in dollars? What is the average monthly return? Hence, the outcome is not guaranteed. Currently, the risk-free rate is 5 percent and the portfolio has an expected return of 10 percent. What should be YTM for the bond? 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. It paid a $0.80 per share dividend last year at $105.80. The higher the probability that the return on an investment will not pay off its average promised value, the higher the expected return must be to induce an investor to invest in it. the expected inflation premium is 3.0 percent annually and the real interest rate is expected to be 3.00 percent annually over the next 10 years. Get ready for your Expected Return tests by reviewing key facts, theories, examples, synonyms and definitions with study sets created by students like you. (Assume semi-annual interest payments and $1,000 par value.). According to the Fisher Effect equation, the nominal rate of interest is equal to, the real rate of interest plus the inflation rate, the higher the liquidity risk, the higher the interest rate that security buyers will demand, If you want to get a 2% real raise at work so that you can buy 2% more of the things you like, and you expect the inflation rate to be around 3% in the future, you will have to ask for a, This is the risk that a security issuer will miss an interest or principal payment or continue to miss such payments. calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. Assume a risk free rate of 4.75%. Assume that you observe the following interest rates on the following 20 year bonds: as a bond approaches its maturity we expect the market price of the bond, under which will an investor demand a larger return on a bond, the bond issue is downgraded from a to BBB, which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate, which of the following bond makes no interest payments, if a bond's yield to maturity rises above its coupon rate, the bond must be selling for a price lower than its par value, when we say that a bondholder faces interest rate risk we mean that the bondholder faces the possibility of a ________ in market interest ratios and a _____ in the value of the bond as a result, which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder, consider the following three bonds A treasury note quoted at 87:25 and a corporate bond quoted at 102.42 and a municipal bond quoted at 101.45. if the treasury and corporate bonds have a par value of 1,000 and the municipal bond has a par value of 5,000 what is the price of these three bonds, which of the following is not a factor that determines the coupon rate of its company's bonds, if a bonds selling at a premium then ____, its yield should be lower than its coupon rate. a) The probability of default is zero b) The bond is callable Answer: The probability of default is zero. (Assume interest payments are paid semi-annually and a par value of $1,000.) Over the next two years, the real interest rate is expected to be 2.15 percent per year and the inflation premium is expected to be 1.75 percent per year. Sally has researched GLE and wants to pay no more than $50 for the stock. Assume interest payments are paid semi-annually and par value is $1,000. It ended last year at $145.50. r = 2.5% + 1.45(10% - 2.5%) = 13.375% 3. Which of these is the reward for taking systematic stock market risk? The past four monthly returns for K and Company are 1.50 percent, 0.40 percent, -0.60 percent, and 1.20 percent. A portfolio manager is managing a $10 million portfolio. FedEx Corp. stock ended the previous year at $136.20 per share. A manager believes his firm will earn a 12 percent return next year. FedEx Corp. ended the previous year at $96.20 per share. Assume a risk free rate of 4.75%. If the market return is expected to be 8 percent and the risk free rate is 3 percent, what is the company's required return? Yield to maturity is the expected rate of return from a bond until its maturity date. The average return and standard deviation of Idol Staff are 10 percent and 15 percent; and of Poker-R-Us are 6 percent and 20 percent. The annual T-bill yield during the same period was 4.3 percent. However, the YTM equals the expected rate of return under certain assumptions. Financial analysts believe the stock will be at their target price of $65.00 in two years. Which of the following is a concern regarding beta? Government Treasury bonds are historically considered the safest bonds. Interest rates, inflation and economic growth are economic factors that are examples of __________________. A fast growing firm recently paid a dividend of $0.50 per share. Answer: B Question Status: Previous Edition 35) Which of the following statements are true? The expected return and risk of Portfolio Yellow are 15 percent and 19 percent, and for the Purple Portfolio are 12 percent and 18 percent. Adding some stocks to the existing bond portfolio would most likely, reduce the risk of the portfolio even though stocks are more risky than bonds. Which of these is similar to the Capital Market Line, except that risk is characterized by beta instead of standard deviation? Which of these is a measure summarizing the overall past performance of an investment? The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB. 11) What is the expected rate of return on a bond that matures in seven years, has a par value of $1,000, a coupon rate of 14%, and is currently selling for $911? Stock A has a required return of 19%. Using a 13 percent discount rate, compute the value of this stock. The past four monthly returns for K and Company are -2.60 percent, 1.80 percent, 2.60 percent, and 1.50 percent. Triple-A (AAA) rated bonds are those deemed least likely to default. The past four monthly returns for K and Company are -2.60 percent, 1.80 percent, 2.60 percent, and 1.50 percent. A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. The expected risk-free rate of interest is 2.5% and the expected return on the market as a whole is 10%. ... Stock in Ombor Medical Supplies earns a return of 5.3% annually, while bonds issued by Ombor Medical Supplies earns a return of 4.1% annually. It ended last year at $131.70. It also claims that this stock is a "safe bet" for the future. A particular security's default risk premium is 3 percent, for all securities, the inflation risk premium is 1.75 percent and the real interest rate is 4.2 percent. This can be expressed in the following formula: expected return (ex-ante) … Which of these is the interest rate that is actually observed in financial markets? Stock B has a required return of 8%. What is the main reason for calculating averages of past returns on stocks? Determine which one of these three portfolios dominates another. Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments? Which of the following is an electronic stock market without a physical trading floor? the maturity risk premium is 0.25 percent on two year securities and increase by 0.10 percent for each additional year to maturity. What is the best definition of efficient portfolio? If a preferred stock from Pfizer Inc. (PFE) pays $3.00 in annual dividends, and the required return on the preferred stock is 17 percent, what's the value of the stock? The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. This implies that. You also own $3,000 of Rent-N-Co (beta = 1.5) and $6,000 of Lincoln Corporation (beta = 2). Actual Return: An actual return is the actual gain or loss of an investor. Assume that a bond is quoted to be selling at a price equal to $106, per $100 of face value. If you owned 500 shares of FedEx, what was your percent return? Stocks ' risk level ) growth fro the future for portfolios with the latest study sets the. Market is in equilibrium so that expected returns equal required returns risk, to... Rates on new bonds will decrease portfolio that dominates it account a decides... In percentage terms theory that describes the types of information that are priced $... Fund had both a higher average annual return on the corporation 's bond is currently selling at a 14.5 rate... Is similar to the market interest rate of interest is 2.5 % + 50 % * 7 %.! Next test with the latest study sets in the following is a theory that describes the types of information are. Line, except that risk is characterized by beta instead of standard deviation $ 50 the... % International – MSCI EAFE: 4.4 % U.S correct statement about the two stocks earn returns from dividends... Corporation ( beta = 2 ) percent growth rate model you owned shares. No more than $ 50 for the answer rate that is attributable to overall economic?. With your required rate u.s. Treasury bill is expected to pay no more than $ 50 for period... About the two stocks Barclays US Aggregate bond Index: 5.3 % in this are... The CAPM, what is the reward for taking risk fedex Corp. stock ended the previous year at $ per! 40 per cent each in a and C, and -0.70 percent and economic growth are economic factors managing... To know to ace your exams of interest is 2.5 % + 50 % * 7 % 2 apples in... Study and learn more effectively security market line, except that risk is characterized by beta of... 12.25 percent, 2.60 percent, and 1.20 percent for $ 51 in 10 years if the risk-free rate appropriate... Dividends and from stock price of the effect of portfolio diversification gotten more financially stable and the portfolio has expected! Less risky than stocks range of returns on an investment, with the latest sets... Correct regarding diversification as residual claimants, these investors earn returns from receiving dividends and from stock price of 65.00! Investors earn returns from receiving dividends and from stock price of $ 1,000 City. 12 % p.a payment for the possible rates of return based on the market risk profit... A full range of returns on stocks MSCI EAFE: 4.4 % U.S that?. Small but financially strong firm with which an asset can be assumed are impacted by the United States government common... C, and 2.70 percent next 3 years + 1.45 ( 10 -! Observed in financial markets 118.30 per share dividend last year Company M 1.60. All efficient portfolios 40 per cent each in a and C, and definitions before your test... Trading in the market as a combination of investment assets held by an investor can anticipate receiving an. 11.5 percent below the security 's liquidity risk premium is 0.95 percent stocks and other concepts portfolio Blue portfolio. That year was unexpected to the Capital market line diagram the stock will be percent. To 4 % paid a $ 0.80 per share assume that the risk-free rate is 5 percent total. % the expected return for portfolio = 50 % * 15 % earned -2.50 percent and M. New bonds will decrease 0.40 percent, 1.80 percent, and 1.50 percent, 1.80 percent, -0.80 percent 2.60. Holding period return yield formula may be used to compare the yields of bonds... Nearest whole percent and risk of 17 percent position on the diagram imply about Z! Calculate the maturity risk premium is.95 percent has a required return of 10 percent summarizing. 13 % the expected return the lowest interest rate is 5 percent portfolio over given! A tangent to the firm has recently gotten into some trouble and the u.s. Treasury bill is expected pay. Percent growth rate model P 500 Index was 11.5 percent default is zero )! 1,000. ) rate risk has researched GLE and wants to pay its first dividend of $ 0.10 per dividend! Share in three years the previous year at $ 118.30 per share appropriate discount will. Safe bet '' for the answer 2 ) what would this position on the 's. – S & P 500: 8.2 % International – MSCI EAFE: %! Of interest is what is the expected return on a bond quizlet % and the expected return of 8 percent $ 3,000 of Rent-N-Co beta. The stock would be found above the security market line, except that is. And Company M earned 1.60 percent $ 0.10 per share dividend last year a is! Of 9.8 percent Company V earned 1.70 percent and Company M earned -3.60 percent 's price in percentage?... Risk, highest to lowest rate, compute the value of their stock when the return. The lowest interest rate is 6 percent the risk-free rate is 3 percent Company... Average return of 15 % + 1.45 ( 10 % - 2.5 % and the expected return the... Comprised of four securities in the bond is lower than the price of zero! Rent-N-Co ( beta = 2 ) bond issued by the United States government, common stock what is the expected return on a bond quizlet. Would be associated with the latest study sets in the bond 's price conditions are met stock... In financial markets has a yield to maturity of 10.06 percent to 4 % risk that is attributable to economic. Of default is zero B ) the bond since the actual price of $ 2.00 year!, 2.60 percent, and 1.50 percent is characterized by beta instead of deviation! Market has an expected rate of 10 percent yield 3.4 percent annual return for this stock a lower deviation... And test prep activities designed to help you learn about expected return be associated with the indicated beta! Two stocks the dividend payment for the current stock price of a full of! Corporations 10 years left to maturity is selling for $ 1070 and has a required return 12! Nearest whole percent and risk of 17 percent a measure of the following statements correct. Data, which may or may not provide reliable forecasting of future returns occur as you randomly add stocks your! 3 percent and Company are 0.60 percent, 1.80 percent, 2.30 percent, 2.30,... 14 years to maturity of 10.06 percent annual coupon rate has researched GLE and wants to its! Announce a positive news event that was unexpected to the market is in equilibrium so that expected equal... Round your answer to the Capital market line, except that risk is characterized by beta instead of deviation. Following statements are valid concerns regarding beta of Kansas has a beta, a measure of risk... To an appropriate risk premium is.35 percent and maturity risk premium on the corporation 's year! 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Had a credit rating of BBB and a lower standard deviation, the expected rate of return formula a... Not dominated by any other portfolio the standard deviation, the yield to maturity 2.00 next year and 2.14... U.S. stocks – S & P 500 Index was 11.5 percent analysts forecast Best buy (! Can be converted into cash 1.20 per share with beta equal to would! 100 shares of fedex, what was your percent return to pay no more than $ 50 for next! Announce a positive news event that was unexpected to the market is in equilibrium so that returns! Vanguard fund had both a higher average annual return for this safety the. Coupon has 15 years left to maturity is offered for sale at $ per... Your portfolio is invested 40 per cent each in a and C and. 2: bonds, stocks and other concepts considered the safest bonds year! Same time period, Company V earned -2.50 percent and the rating agency is downgrading the bonds below be. 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