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b. Compute the value of the stock based on Security Analyst B’s
approach.
c. Security Analyst C uses the constant dividend valuation model
approach presented in Chapter 7 as Formula 7–5 on page 147. She
uses Security Analyst B’s assumption about dividends (per share) and
assigns a growth rate, g, of 9 percent and a required rate of return
(Ke) of 12 percent. Is her value higher or lower than that of the other
security analysts?
12. Using the formula for the security market line (Formula 21–7 on
page 534), if the risk-free rate (RF) is 7 percent, the beta (bi) is 1.25,
and the market rate of return (KM) is 11.8 percent, compute the
anticipated rate of return (Ki).
13. If another security had a lower beta than indicated in problem 10,
would Kibe lower or higher? What is the logic behind your answer in
terms of risk?
14. The capital market line (CML) as defined by the capital asset
pricing model is characterized by all of the following except
15. The beta coefficient is a measure of
16. Systematic risk is rewarded with a premium in the marketplace
because
17. Which of the following are assumptions of the capital asset
pricing model?
18. The correlation coefficient:
19. The standard deviation of a risk-free asset is:
20. A good way to minimize risk and receive an optimum return on
your portfolio is:
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