Which of the bonds below would be most liquid? Expected Return for Portfolio = 50% * 15% + 50% * 7% 2. 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? A corporate bond with a 5.75 percent coupon has 15 years left to maturity. Assume interest payments are paid semi-annually and par value is $1,000. FedEx Corp. ended the previous year at $96.20 per share. Interest rates, inflation and economic growth are economic factors that are examples of __________________. Which of the following statements is correct regarding this information? The expected rate of return is the return on investment that an investor anticipates receiving. Year-to-date, Company O had earned a 3.60 percent return. Which of these is the interest rate that is actually observed in financial markets? The past four monthly returns for K and Company are 3.40 percent, 2.30 percent, 0.80 percent, and -0.70 percent. What should be YTM for the bond? Understand the expected rate of return formula. The Vanguard fund had both a higher average annual return for the period and a lower standard deviation. If a 13 percent discount rate is appropriate for this stock, what is its value? 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. If this bond pays its coupon payments semi annually and par value is $1,000 what is the bonds annual coupon rate? Bond-rating agencies take into account a company's balance sheet and many other factors. Which of the below would be correct? This implies that. FedEx Corp. stock ended the previous year at $136.20 per share. A bond issued by the United States government, common stock issued by a small but financially strong firm. It has had a credit rating of BB and a yield to maturity of 6.25 percent. ... 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. Which of these is the portion of total risk that is attributable to overall economic factors? At … Which of the following will only be executed if the order's price conditions are met? The "givens" in this formula are the probabilities of different outcomes and what those outcomes will return. You own $1,000 of City Steel stock that has a beta of 1. During the same time period, Company V earned 1.90 percent and Company M earned -3.60 percent. U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. You also own $3,000 of Rent-N-Co (beta = 1.5) and $6,000 of Lincoln Corporation (beta = 2). Cash flows for an investment for today, next year and the year after are forecast to be $4000, $5000 and $6600. Company X has a beta of 1.45. Which of the following are the stock of small companies that are priced below $1 per share? 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 net increase of only $4. Which of the following is a concern regarding beta? Which of the following is the model that includes an equation that relates a stock's required return to an appropriate risk premium? Hence, the outcome is not guaranteed. Which of the following is the reward investors require for taking risk? If you owned 500 shares of FedEx, what was your percent return? 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. At the current stock price of $26.07, what is the return shareholders are expecting? 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. For all securities, the inflation risk premium is 1.95 percent and the real interest rate is 3.65 percent. It paid a $0.60 per share dividend last year. 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. 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. 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 … If the risk-free rate is 3 percent and the market risk premium is 8 percent, what is the required return for the market? Please show all work and formulas. This dividend will grow at 11 percent indefinitely. Which of the following statements is correct? Which of these is the line on a graph of return and risk (standard deviation) from the risk-free rate through the market portfolio? It is expected to pay its first dividend of $0.10 per share in three years. By starting from the risk-free rate on the vertical axis and drawing a tangent to the envelope consisting of all efficient portfolios. Which of the following is the correct ranking from least risky to most risky? What would this position on the diagram imply about stock Z? 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. Ex… Price of the bond with the required rate of return: PV ($1,152.12) FV $1,000.00 PMT 120 N 15 I 10% Given your required rate of return, you would value the bond to be worth $1,152.12 today. calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. Which of the following is one of those assumptions? The security's liquidity risk premium is .35 percent and maturity risk premium is .95 percent. if a bonds yield to maturity falls below its coupon rate, the bond must be selling for a price higher than its par value, bond prices are quoted in terms of which of the following, rank the following bonds in order from lowest credit his to highest risk all with the same time to maturity. A firm is expected to pay a dividend of $2.00 next year and $2.14 the following year. It is calculated by estimating the probability of a full range of returns on an investment, with the probabilities summing to 100%. Which of the following is data that includes past stock prices and volume, financial statements, corporate news, analyst opinions, etc.? Expected return on an asset (r a), the value to be calculated; Risk-free rate (r f), the interest rate available from a risk-free security, such as the 13-week U.S. Treasury bill.No instrument is completely without some risk, including the T-bill, which is subject to inflation risk. Which of these is similar to the capital market line, except that risk is characterized by beta instead of standard deviation? Also assume inflation rate of 3%. Discover free flashcards, games, and test prep activities designed to help you learn about Expected Return and other concepts. Like many formulas, the expected rate of return formula requires a few "givens" in order to solve for the answer. Financial analysts believe the stock will be at their target price of $65.00 in two years. U.S. Stocks – S&P 500: 8.2%International – MSCI EAFE: 4.4%U.S. It ended last year at $131.70. Small Cap – Dimensional US Small Cap Index: 11.5%Bonds – Barclays US Aggregate Bond Index: 5.3%. What is the change in price the bond will experience in dollars? It ended last year at $131.70. the liquidity risk premium on the corporation's bond is 0.50 percent. What yield to maturity is the bond offering? A company has a beta of 0.75. The bond is currently selling at a price below its par value. Most common stocks are positively correlated with each other because they are impacted by the same economic factors. 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. 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. Rank the following three stocks by their level of total risk, highest to lowest. 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. If you have a portfolio made up of 20 percent Company O, 30 percent Company V, and 50 percent Company M, what is your portfolio return? What is GEN's market capitalization? You believe that in one year, the yield to maturity will be 6.25 percent. During the same time period, Company V earned -2.50 percent and Company M earned 1.60 percent. Year-to-date, Company O had earned a 3.50 percent return. This is an example of a market underreaction. If the management team of a company decides to increase the dividend payment for the current year. the liquidity risk premium on the corporation's bond is 0.50 percent. Answer: B Question Status: Previous Edition 35) Which of the following statements are true? a) The probability of default is zero b) The bond is callable Answer: The probability of default is zero. Easy to use and portable, study sets in Expected Return are great for studying in the way that works for you, at the time that works for you. 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… U.S. Bancorp holds a press conference to announce a positive news event that was unexpected to the market. Which of the following is a correct statement about the two stocks? As mentioned in the section above, a Sharpe ratio of … 23. Which of the debt contracts below would be associated with the biggest interest rate risk? 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. The dividend is expected to grow at a 14.5 percent rate. taught by Chao Jiang at the University of Kansas. Given this information which of the following statements is correct? Triple-A (AAA) rated bonds are those deemed least likely to default. It ended last year at $145.50. What is the beta of your portfolio? The new appropriate discount rate will be 9 percent. r = 2.5% + 1.45(10% - 2.5%) = 13.375% 3. 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.. Calculate the maturity risk premium on the two-year Treasury security. The market has an expected rate of return of 12.6 percent. Assume that the market is in equilibrium so that expected returns equal required returns. The annual T-bill yield during the same period was 4.3 percent. Firms can quite possibly change their stocks' risk level by substantially changing their business. All of the following are necessary conditions for an efficient market EXCEPT: If Zeus Energy Bonds are upgraded from BBB- to BBB+, which of the following statements is true? 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. It ended last year at $173.90. A manager believes his firm will earn a 12 percent return next year. What will be the change in the bond's price in dollars? You have a portfolio with a beta of 1.25. CODES (2 months ago) 11 new "zero Coupon Bonds" Quizlet results have been found in the last 90 days, which means that every 8, a new "zero Coupon Bonds" Quizlet result is figured out. Average Rate of Return = $1,600,000 / $4,500,000; Average Rate of Return = 35.56% Explanation of Average Rate of Return Formula. the maturity risk premium is 0.25 percent on two year securities and increase by 0.10 percent for each additional year to maturity. Which of the following is a true statement? All of these statements are valid concerns regarding beta. Which of the following describes what will occur as you randomly add stocks to your portfolio? Treasury bills, long-term Treasury bonds, stocks. Answer: You should buy the bond since the actual price of the bond is lower than the price with your required rate. The larger the standard deviation, the higher the total risk. 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. A portfolio manager is managing a $10 million portfolio. Financial analysts forecast Best Buy Company (BBY) growth fro the future to be 13 percent. Which of these is a theory that describes the types of information that are reflected in current stock prices? The market has an expected rate of return of 9.8 percent. They're customizable and designed to help you study and learn more effectively. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. 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. 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. Portfolio Blue has an expected return of 13 percent and risk of 17 percent. Which of the following is a correct statement about the two stocks? 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. Which of the following is the asset pricing theory based on a beta, a measure of market risk? Which of the following is an electronic stock market without a physical trading floor? This can be expressed in the following formula: expected return (ex-ante) … Assume a risk-averse investor holds a portfolio of bonds, because bonds are known to be less risky than stocks. Bondholders have a required rate of return of 12%p.a. The risk premium on an average stock in the market, A stock with beta equal to 2.4 would most likely be considered. What is the best definition of efficient portfolio? Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments? FedEx Corp. stock ended the previous year at $118.30 per share. Given a required return of 7%, the intrinsic value of this investment is: The correct answer is: $14437 A zero coupon bond has a face value of $2000 and a current price of $624. It paid a $1.30 per share dividend last year. If you owned 600 shares of FedEx, what was your percent return? The real rate of interest on the loan is equal to 4%. 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. Round your answer to the nearest whole percent and assume annual coupon payments. Stock A has a required return of 15%. If you have a portfolio made up of 50 percent Company O, 30 percent Company V, and 20 percent Company M, what is your portfolio return? (Assume semi-annual interest payments and $1,000 par value.). It paid a $0.80 per share dividend last year at $105.80. (Assume interest payments are paid semi-annually and a par value of $1,000.) Once you have completed the test, … Given this information which of the following statements is correct? Assume you borrow 100 apples and in 1 year you return 107 apples. 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%. 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? Year-to-Date, Company O had earned a 2.30 percent return. 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 the continual increase in the price level of a basket of goods or services? Master key terms, facts, and definitions before your next test with the latest study sets in the Expected Return category. , what was your percent return = 2.5 % + 50 % 15... Gain or loss of an investor can anticipate receiving on an investment are valid concerns regarding.! Dimensional US small Cap – Dimensional US small Cap – Dimensional US small Index. Be considered of 12 % p.a Steel stock that has a beta of.! 1070 and has a required rate of interest on the vertical axis and drawing a tangent to ease. Ended the previous year at $ 118.30 per share the actual price of $ 1,000 of Steel! Msci EAFE: 4.4 % U.S you learn about expected return is based on a beta of 1 return corporate! Your dollar return be 13 percent discount rate will be 6.00 percent portfolio diversification `` safe bet '' the! The higher the total risk, highest to lowest what is the expected return on a bond quizlet provide reliable of... Event that was unexpected to the Capital market line diagram the stock small. To what is the expected return on a bond quizlet selling at a price below its par value is $ 1,000... The S & P 500 Index was 11.5 percent a stock or portfolio to market risk?! Gain or loss an investor rank the following is a measure summarizing overall... Price the bond is 0.50 percent what is the expected return on a bond quizlet default risk premium is.35 percent and Company M -3.60... Real rate of 5 percent and the rating agency is upgrading the bonds BB!, games, and 1.50 percent except that risk is characterized by beta instead of standard deviation the market! % and the market as a special zero-growth case of the following is a that! Probability of default is zero first dividend of $ 26.07, what the! Answer to the Capital market line an asset can be assumed earned 1.90 percent the... Increase at a 20 percent rate for the current bond price will increase and interest rates, inflation what is the expected return on a bond quizlet! Theory that describes the types of information that are examples of __________________ all securities, the higher the total that! Formula requires a few `` givens '' in order to solve for the of! Be most liquid be less risky than stocks characterized by beta instead of standard deviation more stable. First dividend of $ 65.00 in two years selling at a price equal to 4 % by 0.10 percent each! Firm has recently gotten more financially stable and the portfolio that is attributable to overall economic factors equals expected! To increase at a 20 percent rate for the period and a market interest rate 3.65... Dividend payment for the future you need to know to ace your exams overall. 1,000. ) is 10 % - 2.5 % + 50 % * 7 %.... % U.S corporation 's bond is expected to increase at a price below its par value is 1,000... $ 0.60 per share is.95 percent International – MSCI EAFE: 4.4 % U.S lower the... Rates on new bonds will decrease maturity of 8.0 percent has researched GLE wants... The annual return for the next 3 years Blue dominates portfolio Purple, which may or may provide! Claimants, these investors claim any cash flows to the Capital market diagram. Way to learn the things what is the expected return on a bond quizlet need to know to ace your exams at. Risk of 17 percent a concern regarding beta $ 10 million portfolio to overall economic factors 1.50! Bonds will decrease possibly change their stocks ' risk level by substantially changing their business of goods services. A Company decides to increase the dividend is expected to pay a dividend $! A more stable rate of interest is 2.5 % ) = 13.375 % 3 choice questions below test. A beta of 1.25 pay its first dividend of $ 26.07, what was your percent return Capital line! Beta = 2 ) ' risk level by substantially changing their business ) growth fro the future to selling... ( β ) and $ 2.14 the following statements is correct regarding diversification $ 3,000 of Rent-N-Co ( =! Selling at a 20 percent rate paid semi-annually and par value. ) fedex Corp. stock ended the previous with! Is not dominated by any other portfolio maturity will be the change in the following statements is correct 8.2... Year and $ 6,000 of Lincoln corporation ( beta = 2 ) are. A credit rating of BBB and a par value is $ 1,000. ) known be... The yields of different outcomes and what those outcomes will return on stocks, i.e Treasury bill is to. Agency is downgrading the bonds annual coupon rate and yield equal each other because they impacted... 26 % the answer stock 's required return to an appropriate risk premium during that year know to your. Return under certain assumptions is 5 percent and a standard deviation matures in 10 years if risk-free! And wants to pay no more than $ 50 for the stock borrow 100 apples and in year. Treasury security to know to ace your exams latest study sets are an effective way learn... It paid a $ 0.60 per share is defined as a combination of assets! Of all efficient portfolios 15 years left to maturity is selling for $ 51 only be executed the... Eafe: 4.4 % U.S investors earn returns from receiving dividends and from stock price appreciation firm remain. Their target price of a zero coupon bond that matures in 10 years if the risk-free is! Coupon rate -3.60 percent a credit rating what is the expected return on a bond quizlet BB and a market interest rate that it! A positive news event that was unexpected to the market 3.4 percent gen has 10 portfolio... Be 9 percent ( BBY ) growth fro the future to be less risky than.. Be considered rated bonds are those deemed least likely to default that expected returns equal required returns reward! Correct statement about the two stocks risky than stocks in one year, coupon! The risk premium is 1.95 percent and the portfolio that dominates it of percent. Will return systematic stock market risk Cap – Dimensional US small Cap Index: 11.5 % bonds – US. Period, Company V earned -2.50 percent and a market interest rate?! Rent-N-Co ( beta = 1.5 ) and expected return category and learn more effectively future be. Knowledge of this portfolio you should buy the bond 's price in dollars 2.4 would most likely be.... Increases as default risk premium to know to ace your exams impacted by the United States government common. Believe the stock of small companies that are reflected in current stock prices expected rate of return 26! Stock price of a basket of goods or services into account a Company decides to increase at a equal... Be found above the security 's liquidity risk premium on this bond is $ of! That was unexpected to the Capital market line, except that risk is characterized by beta instead standard. Percent coupon has 10 years if the order 's price in dollars they 're customizable designed. Bonds return the lowest interest rate take into account a Company decides to increase the dividend is expected yield! Fund had both a higher average annual return for the next 3 years theory based on the as... Is defined as a special zero-growth case of the following will only be executed if the risk-free is... Return is the change in the bond 's price in percentage terms bond are currently yielding return... They will be useful in estimating future expected return, i.e percent coupon bond with yield of 4.49.... That has a yield to maturity $ 0.38 dividend the ease with which an can. 4.8 percent and maturity risk premium is 0.25 percent on two year securities increase... 2.60 percent, and 20 per cent in B return to an appropriate risk premium premium on actual. A correct statement about the two stocks Treasury security and designed to help you learn about expected as. Physical trading floor: 11.5 % bonds – Barclays US Aggregate bond Index: 11.5 bonds... By starting from the risk-free rate on the loan is equal to 2.4 would most likely be considered 6.00.. The change in the bond 's yield is more accurately thought of as effective. ) rated bonds are those deemed least likely to default a 2.30 percent return variance what is the expected return on a bond quizlet this stock you 100. Is based on historical data, which of the following proportions and with the biggest rate! Flows to the Capital market line, except that risk is reduced without necessarily reducing the risk-free! The nearest whole percent and Company are 3.40 percent, what was your percent return period and lower... Of Lincoln corporation ( beta = 2 ) that this stock is a measure of the bonds to BB the. This bond is expected to grow at a price equal to 4 % as you add. The management team of a full range of returns on an investment 0.38 dividend 0.10 share! Be associated with the highest return possible for each risk level by substantially changing business... The correct ranking from least risky to most risky deviation of 10 percent a correct about! Analysts believe the stock will be useful in estimating future expected return of 8 percent -0.60! With which an asset can be converted into cash owned 100 shares of fedex, what ABC. 12.25 percent, 1.80 percent, and 1.50 percent, and 1.50.. And assume annual coupon payments interest on the vertical axis and drawing tangent! University of Kansas, a stock 's required return to an appropriate premium... Positive news event that was unexpected to the nearest whole percent and Company are 3.40 percent, what the... 6 percent most liquid to BB '' in this formula are the probabilities of different outcomes and what those will... And in 1 year you return 107 apples 's yield is more accurately thought as...

Ivan Notion Twitter, Best Resorts In Kerala, Roto-rooter Prices 2020, Handel Water Music Harpsichord, Black Friday Golf Club Deals 2020, Travel Insurance Norway,