Suppose that the CAPM is a valid description of security returns over the next 12 months...
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Suppose that the CAPM is a valid description of security returns over the next 12 months and you, being a financial analyst, are analyzing some securities. You have the following data: 7, -6% E[r]=12% JM = 18% risk-free rate of return expected return on the market standard deviation of the market return a. Write down an equation that relates the expected return of a stock X, E[rx]. to its systematic risk. (5 points) b. What is the expected return of X if X's beta is 1.5? (5 points) c. Is it possible to have a stock A with expected return of 10% and standard deviation of 20%? Why or why not? (5 points) d. Is it possible to have a stock B with expected return of 18% and standard deviation of 24%? Why or why not? (5 points) Suppose that the CAPM is a valid description of security returns over the next 12 months and you, being a financial analyst, are analyzing some securities. You have the following data: 7, -6% E[r]=12% JM = 18% risk-free rate of return expected return on the market standard deviation of the market return a. Write down an equation that relates the expected return of a stock X, E[rx]. to its systematic risk. (5 points) b. What is the expected return of X if X's beta is 1.5? (5 points) c. Is it possible to have a stock A with expected return of 10% and standard deviation of 20%? Why or why not? (5 points) d. Is it possible to have a stock B with expected return of 18% and standard deviation of 24%? Why or why not? (5 points)
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a The equation that relates the expected return of a stock X Ex to its systematic risk beta x accord... 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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