(CAPM and expected returns) a. Given the following holding-period returns, LOADING... Month Zemin Corp. Market 1 8 % 5 % 2 5 4 3 0 2 4 −4 −1 5 6 4 6 3 3 , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.12 and the risk-free rate is 7 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? Question content area bottom Part 1 a. Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is enter your response here%. (Round to two decimal places.) Part 2 The standard deviation for the Zemin Corporation is enter your response here%. (Round to two decimal places.) Part 3 Given the holding-period returns shown in the table, the average monthly return for the market is enter your response here%. (Round to three decimal places.) Part 4 The standard deviation for the market is enter your response here%. (Round to two decimal places.) Part 5 b. If Zemin's beta is 1.12 and the risk-free rate is 7 percent, the expected return for an investor owning Zemin is enter your response here%. (Round to two decimal places.) Part 6 The average annual historical return for Zemin is enter your response here%. (Round to two decimal places.) Part 7 c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? (Select from the drop-down menu.) Zemin's historical average return is ▼ less than greater than the return based on the capital asset pricing model and the firm's systematic risk.
(CAPM and expected returns) a. Given the following holding-period returns, LOADING... Month Zemin Corp. Market 1 8 % 5 % 2 5 4 3 0 2 4 −4 −1 5 6 4 6 3 3 , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.12 and the risk-free rate is 7 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? Question content area bottom Part 1 a. Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is enter your response here%. (Round to two decimal places.) Part 2 The standard deviation for the Zemin Corporation is enter your response here%. (Round to two decimal places.) Part 3 Given the holding-period returns shown in the table, the average monthly return for the market is enter your response here%. (Round to three decimal places.) Part 4 The standard deviation for the market is enter your response here%. (Round to two decimal places.) Part 5 b. If Zemin's beta is 1.12 and the risk-free rate is 7 percent, the expected return for an investor owning Zemin is enter your response here%. (Round to two decimal places.) Part 6 The average annual historical return for Zemin is enter your response here%. (Round to two decimal places.) Part 7 c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? (Select from the drop-down menu.) Zemin's historical average return is ▼ less than greater than the return based on the capital asset pricing model and the firm's systematic risk.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 20P
Related questions
Concept explainers
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Question
(CAPM and expected returns)
a. Given the following holding-period returns,
compute the average returns and the standard deviations for the Zemin Corporation and for the market.
LOADING...
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Month
|
Zemin Corp.
|
Market
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||
|---|---|---|---|---|
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1
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8
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%
|
5
|
%
|
|
2
|
5
|
|
4
|
|
|
3
|
0
|
|
2
|
|
|
4
|
−4
|
|
−1
|
|
|
5
|
6
|
|
4
|
|
|
6
|
3
|
|
3
|
b. If Zemin's beta is
1.12
and the risk-free rate is
7
percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?
Question content area bottom
Part 1
a. Given the holding-period returns shown in the table, the average monthly return for the Zemin Corporation is
enter your response here%.
(Round to two decimal places.)Part 2
The standard deviation for the Zemin Corporation is
enter your response here%.
(Round to two decimal places.)Part 3
Given the holding-period returns shown in the table, the average monthly return for the market is
enter your response here%.
(Round to three decimal places.)Part 4
The standard deviation for the market is
enter your response here%.
(Round to two decimal places.)Part 5
b. If Zemin's beta is
1.12
and the risk-free rate is
7
percent, the expected return for an investor owning Zemin is
enter your response here%.
(Round to two decimal places.)Part 6
The average annual historical return for Zemin is
enter your response here%.
(Round to two decimal places.)Part 7
c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk? (Select from the drop-down menu.)
Zemin's historical average return is
the return based on the capital asset pricing model and the firm's systematic risk.
▼
less than
greater than
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