(Capital asset pricing model) Grace Corporation is considering the following investments. The current rate on Treasur
Posted: Thu May 19, 2022 5:26 am
(Capital asset pricing model) Grace Corporation is
considering the following investments. The current rate on Treasury
bills is
2
percent and the expected return for the market is
10
percent.
Stock
Beta
K
1.08
G
1.26
B
0.82
U
0.99
(Click
on the icon
in order to copy its contents into a
spreadsheet.)
a. Using the CAPM, what rates of return should Grace
require for each individual security?
b. How would your evaluation of the expected rates of return
for Grace change if the risk-free rate were to rise to
4
percent and the market risk premium were to be only
7.5
percent?
c. Which market risk premium scenario (from part a or
b)
best fits a recessionary environment? A period of
economic expansion? Explain your response.
considering the following investments. The current rate on Treasury
bills is
2
percent and the expected return for the market is
10
percent.
Stock
Beta
K
1.08
G
1.26
B
0.82
U
0.99
(Click
on the icon
in order to copy its contents into a
spreadsheet.)
a. Using the CAPM, what rates of return should Grace
require for each individual security?
b. How would your evaluation of the expected rates of return
for Grace change if the risk-free rate were to rise to
4
percent and the market risk premium were to be only
7.5
percent?
c. Which market risk premium scenario (from part a or
b)
best fits a recessionary environment? A period of
economic expansion? Explain your response.