a. Annie is curious to know whether the following 5 stocks are appropriately valued in the market. Accordingly, she creates a table (shown below) listing the betas of each stock along with their ex-ante expected return values that have been calculated using a probability distribution. She also lists the current risk-free rate and the expected rate of return on the broad market index. Help her out and state your steps.

b. If Annie wants to form a 2-stock portfolio of the most undervalued stocks with a beta of 1.3, how much will she have to weight each of the stocksby?

  • CreatedMay 08, 2014
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