# Assignment 8 Explanation

Satisfactory Essays
Assignment 8 Question #8 (10 points) Suppose CAPM works, and you know that the expected returns on Walmart and Amazon are estimated to be 12% and 10%, respectively. You have just calculated extremely reliable estimates of the betas of Walmart and Amazon to be 1.30 and 0.90, respectively. Given this data, what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (No more than two decimals in the percentage return, but do not enter the % sign.) First start by writing out the CAPM formula: Stock return=Risk free rate (RFR) + Stock’s beta * Market Risk Premium (MRP) In this question, we are given the stock return and the stock beta, and we are asked to solve for the risk free rate. However, we also don’t know what the market risk premium is. But we can set up two separate equations and rearrange them to represent the MRP in terms of the RFR. The Walmart stock return can be written as: 0.12=RFR + 1.3*MRP And Amazon: 0.10= RFR + 0.9*MRP Rearranging the Amazon equation, we can isolate the MRP as a function of the RFR: (0.10-RFR)/0.9=MRP. Now we can plug this into the Walmart equation and solve for the RFR. So we re-write the Walmart equation using the above formula in place of MRP, as follows: 0.12=RFR+1.3*[(0.10-RFR)/0.9]. Then you should be able to solve for the RFR!

## You May Also Find These Documents Helpful

• Satisfactory Essays

Assignment 8 (24 points) Assignment 8: The Business World Instructions Save this file in your course folder, and name it with Assignment, the section number, and your first initial and last name. For example, Jessie Robinson's assignment for Section 1 would be named Assignment1JRobinson. Type the answers to the assignment questions below. Use complete sentences unless the question says otherwise. You will have more than one day to complete an assignment. At the end of each day, be sure to save…

• 570 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

Assignment 8.2 1. Firms sometimes set a low price in a new product-market (penetration pricing) to discourage potential competitors from entering the market. Can you identify a circumstance where a company might deliberately want to attract competitors to a new market and set a high price to help accomplish such an objective? Companies that set a higher price in their market to attract competitors usually do to attract a certain profile of customers. Having a higher priced product usually…

• 637 Words
• 3 Pages
Satisfactory Essays
• Satisfactory Essays

Exercise 1: She won’t be able to afford the loan on a 15% interest rate as the monthly payment for the loan would be R -2379.99 which is R 178.00 over her monthly projected budget for the loan. Top of Form DataBottom of Form Description 15% Annual interest rate 60 Number of months of payments 100000 Amount of loan Formula Description (Result) R -2 378.99 Monthly payment for a loan with the above terms Exercise 2: 1. Can she afford the loan if the annual interest rate is 10%? Yes 2. Can she afford…

• 355 Words
• 5 Pages
Satisfactory Essays
• Better Essays

Briefly describe the INTER-CONNECTIVENESS between the five functions of event management. The five functions of event management are the following; planning, human relations, catering and food services, marketing and fundraising and there is an obvious inter – connectiveness between these. If we look in to the breakdown of each major function we will see that each one shows similarities these similarities are the characteristics required to achieve the functions goals. Such as being organized,…

• 1819 Words
• 5 Pages
Better Essays
• Good Essays

BS1547 Introduction to Economics Coursework 1 — Microeconomics Question Consider a market transaction that you have undertaken as a consumer which was notable because it is particularly recent, large or unusual. Basically I want you to think of something that you have bought, it could be anything (though hopefully something more interesting than a loaf of bread). Then in the following parts of the questions you will need to analyse it. Analyse this transaction from a micro-economic standpoint:…

• 424 Words
• 2 Pages
Good Essays
• Satisfactory Essays

Unit 8 Assignment This week's Assignment consists of viewing a scenario about Sandwich Blitz, Inc., reading an article about integrity in leadership, and writing a two-page double-spaced paper. Integrity in leadership is absolutely essential.” In today’s world more companies are looking for people with integrity to head their organizations.” It is because of the lack of integrity that financial turmoil is happening in the world today. If you have integrity you will go somewhere in life. “Grenville…

• 316 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

SUS1501 ASSIGNMENT 8 GREED IS GOOD Rules is rules- Deontology. The theory of deontology states we are morally obligated to act in accordance with a certain set of principles and rules regardless of outcome. Gekko’s speech supports immorality, he is justifying greed. Gekko says ‘Greed is right. Greed works.’ There is nothing right about greed, Kant would not agree. According to Kant’s theory we are morally obligated to act or live according to the rules. Me, me, me-Egoism. Kant claims, a person…

• 365 Words
• 1 Page
Satisfactory Essays
• Satisfactory Essays

Unit 8 Assignment Seyburn Prudhomme 1. There are four types of advanced directives listed in your text. Please list and describe three of them. DNR Order- A do not resuscitate order informs healthcare professionals that a patient does not want extreme measures taken to save his or her life. Living Will- is a legal document that indicates whether a patient wants to be placed on life-prolonging machines should he or she be unable to communicate personal preferences. Power of Attorney- a…

• 342 Words
• 2 Pages
Satisfactory Essays
• Satisfactory Essays

Module 8 - Assignments: Your assignment is from the text. • Chapter 9, problems 1 and 2 Your assignment must be submitted to the Dropbox no later than Sunday 11:59 PM EST/EDT. Problem # 1. The ABC Car Service & Repair Centers are owned by the SILENT car dealer; ABC services and repairs only SILENT cars. Three ABC Car Service & Repair Centers provide service and repair for the entire state. Each of the three centers is independently managed and operated by a shop manager, a…

• 835 Words
• 4 Pages
Satisfactory Essays
• Better Essays

Tyan Keller AC1300313 C04.V.9.1 Introduction to Psychology Assignment 8 Part A November 10, 2014 A Beautiful Mind I choose the movie, A Beautiful Mind, produced by Ron Howard. The movie is about the life of John Forbes Nash Jr., a brilliant mathematician who is entirely focused on his work. However, Mr. Nash, unknowingly, struggles with a mental illness known as paranoid schizophrenia. According to the Diagnostic and Statistical Manual of Mental Disorders, 4th Edition, the diagnostic criteria…

• 851 Words
• 3 Pages
Better Essays