Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Aim:

The aim of this case is to find out the cost of capital (the OCC) that Ameritrade must use in evaluating projects. To do this, you must use the capital asset pricing model (CAPM). You would required to find out an asset beta. While information for Ameritrade’s stock price is available, it is only available for a short period, and so must not be used in calculating a beta. Your solution must work along the following lines:

• Identify comparable companies.

• Using the stock price and returns data given to you, compute the asset betas of these comparable companies.

• Use these asset betas to find out an asset beta for Ameritrade’s project.

• Use the CAPM to come up with an estimate of the OCC on Ameritrade’s project.

Note: The risk-free rate you must use in the SML refers to the risk-free rate over the same horizon as the project/investment you are considering. For projects/investments that last 3 months, for ex, you must use the 3 month risk-free rate1. For projects that last 10 years, use the 10 year rate.

You might suppose that all debt betas are zero. Please check the sensitivity of your results to this assumption.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91990

Have any Question? 


Related Questions in Basic Finance

You have a stock and the measure of systematic risk for

You have a stock and the measure of systematic risk for this stock is 1.9. Assuming that risk free rate is 4% and market expected return is 9% what is the expected rate of return on your stock?

A model of a harbor is made on the length ratio of 3601

A model of a harbor is made on the length ratio of 360:1. Storm waves of 2 m amplitude and 8 m/s velocity occur on the breakwater of the prototype harbor. Significant variables are the length scale, velocity, and g, the ...

Professors note your answer is close but incorrectnbsp

Professors Note: Your answer is close but incorrect.  Please review "calculating the effective cost of short term credit" in your text.  You need to make sure that the note amount is the NET amount (what Worthington actu ...

On august 20 a stock index futures which expires on

On August 20 a stock index futures, which expires on September 20, was priced at 429.70. The index was at 428.51. The dividend yield was 2.7 percent. Discuss the concept of the implied repo rate on an index arbitrage tra ...

1 how is performance management at dmg world media

1. How is performance management at dmg world media different from traditional performance management systems at other companies? 2. What was the impetus for developing a different performance management system at dmg wo ...

If a company has a degree of financial leverage of 20 what

If a company has a degree of financial leverage of 2.0, what is the expected effect of a 2% increase in operating earnings to the earnings to owners? How may using debt financing increase the governance of a company? Exp ...

Wilmas vegetable market had the following transactions

Wilma's Vegetable Market had the following transactions during 2012: 1. Issued $25,000 of par value common stock for cash. 2. Recorded and paid wages expense of $10,000. 3. Acquired land by issuing common stock of par va ...

1 when and why would nonprobability sampling methods be

1. When and why would nonprobability sampling methods be used? 2. Under what conditions is sampling bias likely to occur, what are its effects on generalization, and how can it be avoided? 3. Indicate the similarities an ...

1 discuss the basics of how a stock market works what are

1. Discuss the basics of how a stock market works. What are the advantages and disadvantages of listing on a foreign exchange? 2. Discuss the advantages and disadvantages of dealing with Eurocurrencies. 3. Discuss the co ...

Use psycinfo or a similar database to locate a research

Use PsycINFO or a similar database to locate a research study using a factorial design. (Note: You can try a subject term based on an area of interest, but the most direct path to finding factorial designs is to use a se ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen