1. CHPT 9 1. Explain the difference between stated rate, periodic rate, and effective annual rate.
2. What is effective annual rate if stated rate is 12 percent and compounding occurs semiannually? Quarterly? Monthly?
3. .CHPT 10 What is CAPM model? Why is it called ex ante model? Write out the Security Market Line (SML) and describe the components and the possible sources for each variable.
4. Assume that Everly Healthcare, a provider of skilled nursing facility services, is evaluating the feasibility of building a new facility to replace one of its aging facilities in small, low-volume market. The company’s analysts estimate a market beta for the project of 0.8, which is somewhat lower than the 0.91 market beta of the company’s average project. The corporate beta fo r the project is estimated to be 0.5. Financial forecasts for the new facility indicate an expected rate of return on the equity portion of the investment of 7 percent. If the risk-free rate, RF, is 2 percent and the required rate of return on the market, R(RM), is 10 percent, is the new facility in the best interest of Everly’s shareholders? Explain your answer
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