1. Stock X has a beta of 1.40 and stock Y has a beta of 0.80....

 

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1. Stock X has a beta of 1.40 and stock Y has a beta of 0.80. Assume the appropriate risk-free rate is 3.0% and the appropriate market risk premium is 8.0%. Over the past five years, stock X has had an average return of 15.10%, with a standard deviation of 51%, and stock Y has had an average return of 9.85%, with a standard deviation of 38%. 4 pts a. What is the expected return for stock Y? b. What would be the beta and the expected return of a portfolio in which the investment in stock Y is twice as much as the investment in stock X? c. What is the abnormal return (alpha) on stock X? 1. Stock X has a beta of 1.40 and stock Y has a beta of 0.80. Assume the appropriate risk-free rate is 3.0% and the appropriate market risk premium is 8.0%. Over the past five years, stock X has had an average return of 15.10%, with a standard deviation of 51%, and stock Y has had an average return of 9.85%, with a standard deviation of 38%. 4 pts a. What is the expected return for stock Y? b. What would be the beta and the expected return of a portfolio in which the investment in stock Y is twice as much as the investment in stock X? c. What is the abnormal return (alpha) on stock X?

Answer rating: 100% (QA)

answer a Expected Return for Stock Y We can use the Capital Asset Pricing Model CAPM to calculate th... View the full answer