The market portfolio has an expected return of 9 percent with a 10 percent volatility. The risk-free
Question:
The market portfolio has an expected return of 9 percent with a 10 percent volatility. The risk-free rate is 4 percent. A stock has a 20 percent volatility and a correlation coefficient of minus 0.10 with the market.
a. What is the stock’s beta? What does its sign indicate?
b. What is the stock’s expected return? Explain why it is lower than the risk-free rate.
Step by Step Answer:
a The negative sign indicates that the stock returns have a tendency to move in the o...View the full answer
Finance For Executives Managing For Value Creation
ISBN: 9781473749245
6th Edition
Authors: Gabriel Hawawini, Claude Viallet
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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