Suppose that you use the three average returns per annum calculated in above as the estimates of
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Question:
Suppose that you use the three average returns per annum calculated in above as the estimates of the expected returns for the two stocks and market portfolio, respectively. Suppose that the risk-free rate is 0.8% per annum.
Plot a risk-return graph with beta on the x-axis and returns on the y-axis, which shows the Security Market Line, the market portfolio, and the actual returns of the two stocks.
Determine the fair expected returns for the two stocks according to CAPM
Discuss your findings
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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