Anyone good at finance?

[luvya]

I am working on a hard finance question, but I totally forgot about the basics.

Let's assume IBM has a beta of 1. Expected return is 12%, find the risk-free rate.

Aaaaaaaaaaaaaarrrhhh, can't believe I am stuck this early in the question.

:|

 

[thawolfman]

I'm good at your fiance!

Wait wtf?

 

[luvya]

hehe...fixed

 

[Orsorum]

has a beta of 1. Expected return is 12%, find the risk-free rate.

E(r) = Rf + B(Rm-Rf)
E(r) = Rf + Rm - Rf
E(r) = 12%, Rm = 12%, Rf = 0%

 

[thawolfman]

Originally posted by: Orsorum
has a beta of 1. Expected return is 12%, find the risk-free rate.

E(r) = Rf + B(Rm-Rf)
E(r) = Rf + Rm - Rf
E(r) = 12%, Rm = 12%, Rf = 0%

fscking gangsta d0rk

woot still nate dogg tho!~

 

[dr150]

Do you know how to do a discounted cash flow analysis yet (IRR, etc)?

 

[luvya]

We should really have an official finance thread here, so we can post our questions in one thread.

Anyway, I have a conceptual question here, does a risk-free T-bond have Beta? If not, the return on the risk-free T-bond is essentially the same as the risk-free rate, right?

 

[DeeKnow]

the T-bond rate IS the risk-free rate

 

[Orsorum]

Originally posted by: DeeKnow
the T-bond rate IS the risk-free rate

Yep. You have beta, which is a measure of a stock's volatility versus the market as a whole. With an equation like CAPM, you're measuring the expected return (E(r)) as the risk free rate (Rf) plus the premium you receive for being in the market at all (that is, the return on the market minus the risk free rate, Rm-Rf) times the stock's beta (B).

 

[luvya]

Allright, I understand that stocks have Beta, BUT does T-bond have beta? My guess would be no, since it's the "risk-free" T-bond.

 

[Orsorum]

Originally posted by: luvya
Allright, I understand that stocks have Beta, BUT does T-bond have beta? My guess would be no, since it's the "risk-free" T-bond.

T-bonds have a beta of 0.

 

[Orsorum]

Did that help?