Help with some Finance for Business

Business & Finance
Tutor: None Selected Time limit: 1 Day

The expected return for the general market is 11.0 percent, and the risk premium in the market is 7.4 percent. Tasaco, LBM, and Exxos have beta of 0.848, 0.677, and 0.506, respectively. What are the appropriate expected rates of return for the three securities?

The appropriate expected return of Tasaco is ___%

The appropriate expected return of LBM is ____%

The appropriate expected return of Exxos is_____%

Oct 3rd, 2015

Thank you for the opportunity to help you with your question!

Re = expected return 

Rm  = expected return for the general market

Rf = risk free rate

CAPM model: Re = Rf +(Rm-Rf)* beta

Given:

(Rm-Rf)= 7.4%

Rm=11%

Rf=11-7.4 =3.6%

The appropriate expected return of Tasaco is  =3.6 +7.4%*.848= 9.8752% =9.9%

The appropriate expected return of LBM is =3.6 +7.4%*.677= 8.6%

The appropriate expected return of Exxos is=3.6+7.4%*.506=7.3%


Please let me know if you need any clarification. I'm always happy to answer your questions.
Sep 15th, 2015

The Exxos one seems to be incorrect

Sep 15th, 2015

I rechecked, and found the same answer- .036+.074*.506=.073444 rounded to 7.3%

Sep 15th, 2015

well the computer program is telling me its wrong. Can you help with this then?

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Sep 15th, 2015

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Oct 3rd, 2015
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Oct 3rd, 2015
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