Question: A stock has a beta of 1 2 and the standard

A stock has a beta of 1.2 and the standard deviation of its return is 25%. The market risk premium is 5% and the risk-free rate is 4%.

A) What is the expected return for the stock?
B) What are the expected return and standard deviation for a portfolio that is equally invested in the stock and the risk-free asset?
C) A financial analyst forecasts a return of 12% for the stock. Would you buy it? Why or why not?

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  • CreatedAugust 26, 2013
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