Question

Stock FM has a standard deviation of 25 percent and a correlation coefficient of 0.6 with market returns. The standard deviation of market return is 20 percent, and the expected return is 16 percent. The risk-free rate is 6.5 percent.
a. What is the beta of stock FM?
b. What is the required rate of return of stock FM by the CAPM model?
c. Compare FM’s required return to the expected market return. What causes the difference?



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  • CreatedFebruary 25, 2015
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