Consider these three stock returns with the following annualised characteristics: Expected Return Standard deviation Beta 1.5...
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Consider these three stock returns with the following annualised characteristics: Expected Return Standard deviation Beta 1.5 Stock A 15% Stock B 9% Stock C2% 25% 21% 10% 1.1 0.3 According to the Capital Asset Pricing Model (CAPM), which stock is a better buy, when the market's expected return is 8%, and risk-free rate is 4%? What is the alpha of each stock? Plot the Security Market Line (SML) and each stock's risk-return point on one graph. [10 marks] Consider these three stock returns with the following annualised characteristics: Expected Return Standard deviation Beta 1.5 Stock A 15% Stock B 9% Stock C2% 25% 21% 10% 1.1 0.3 According to the Capital Asset Pricing Model (CAPM), which stock is a better buy, when the market's expected return is 8%, and risk-free rate is 4%? What is the alpha of each stock? Plot the Security Market Line (SML) and each stock's risk-return point on one graph. [10 marks]
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Answer rating: 100% (QA)
To determine which stock is a better buy according to the Capital Asset Pricing Model CAPM we can calculate the expected return for each stock and com... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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