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The average annual return on an Index from 1996 to 2005 was 17.07 percent. The average annual T-bill yield during the same period was 4.07 percent. What was the market risk premium during these ten years? (Round your answer to 2 decimal places.)

Average market risk premium 13.00 % Explanation: Average market risk premium = 17.07% - 4.07% = 13.00%

Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 2 decimal places.) Economic State Probability Return Fast growth 0.20 30 % Slow growth 0.58 5 Recession 0.22 -35

Expected return 1.20 ± 0.01 % Explanation: Expected return = (0.20 × 30%) + (0.58 × 5%) + (0.22 × -35%) = 1.20%

Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 2 decimal places.) Economic State Probability Return Fast growth 0.32 42 % Slow growth 0.34 19 Recession 0.34 -16

Expected return = (0.32 × 42%) + (0.34 × 19%) + (0.34 × -16%) = 14.46%

Nanometrics, Inc., has a beta of 3.80. If the market return is expected to be 11.25 percent and the risk-free rate is 5.00 percent, what is Nanometrics' required return? (Round your answer to 2 decimal places.) Nanometrics' required return % Hints

Explanation: Nanometrics' required return = 5.00% + 3.80 × (11.25% - 5.00%) = 28.75%

Hastings Entertainment has a beta of 0.52. If the market return is expected to be 14.20 percent and the risk-free rate is 5.20 percent, what is Hastings' required return? (Round your answer to 2 decimal places.)

Hastings' required return = 5.20% + 0.52 × (14.20% - 5.20%) = 9.88%

Suppose the NASDAQ stock market bubble peaked at 5,480 in 2000. Two and a half years later it had fallen to 1,255. What was the percentage decline? (Negative answer should be indicated with a minus sign. Round your answer to 2 decimal places.)

Market decline -77.10 ± 0.01 % Explanation: Market decline = (1,255 - 5,480) / 5,480 = -77.10%

You have a portfolio with a beta of 1.37. What will be the new portfolio beta if you keep 93 percent of your money in the old portfolio and 7 percent in a stock with a beta of 0.97? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

New portfolio beta 1.34 ± 0.01 Explanation: New portfolio beta = (0.93 × 1.37) + (0.07 × 0.97) = 1.34

You have a portfolio with a beta of 1.66. What will be the new portfolio beta if you keep 90 percent of your money in the old portfolio and 10 percent in a stock with a beta of 0.81? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

New portfolio beta 1.58 ± 0.01 Explanation: New portfolio beta = (0.90 × 1.66) + (0.10 × 0.81) = 1.58

Suppose Paycheck, Inc., has a beta of 1.02. If the market return is expected to be 16.90 percent and the risk-free rate is 9.90 percent, what is Paycheck's risk premium? (Round your answer to 2 decimal places.)

Paycheck's risk premium 7.14 ± 0.01 % Explanation: Paycheck's risk premium = 1.02 × (16.90% - 9.90%) = 7.14%

If the risk-free rate is 5.30 percent and the risk premium is 6.3 percent, what is the required return? (Round your answer to 1 decimal place.)

Required return 11.6 % Explanation: Required return = 5.30% + 6.3% = 11.6%