Flashcards in Week 15 - Workshop Questions Deck (12)

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1

## How is the ‘Asset Beta’ Calculated for firms?

###
Equity Beta* Market Cap./Total enterprise Value +

Debt Beta* (1- Market Cap./Total enterprise value)

2

## How to calculate the ‘Required return’ for a business using Beta?

### RFR+Beta *(Rm)

3

## How to calculate a companies cost of capital (Almost WACC)?

###
E/E+D*Required return of E +

D/E+D*RFR

4

## Has a firm outperformed the CAPM Expected return?

###
1) What has the firm returned?

Covariance/SDm’(Squared)

2) What was the CAPM expected return?

RFR+B (Rm-RFR)

5

## How is the Alpha of a Stocks Expected return calculated?

### Alpha = Beta Return of business - CAPM

6

## How do you estimate a bonds expected return using the CAPM and an estimated beta?

### RFR+B*Market Risk rate

7

## How do you estimate a bonds expected value using the Yield to Maturity?

### YTM-Default Risk*Expected loss in event of default

8

## What is ‘Re’ equal to?

### The Required Rate of Return

9

## What is ‘Rd’ equal to?

### Rd is equal to the Risk Free Rate

10

## What is the ‘Dividend Discount Model’ (DDM) formula?

### DDM = (D1 +g/ Price)+g

11

## The ‘SML’ method is the same as what?

### The CAPM model

12