Suppose you are a mutual fund manager. You are planning to invest in a portfolio consisting of
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Suppose you are a mutual fund manager. You are planning to invest in a portfolio consisting of two stocks. Stock A has an expected return of 9% and a standard deviation of 17%. Stock B has a standard deviation of 38%, and the covariance between Stock B and the market is 0.089. The two stocks have correlation of 25%. Assume that the market earns expected return of 14% and a standard deviation of 22%, and the risk free rate is 2%.
1) Assuming the CAPM holds, what is the beta for Stock A?
2) Assuming the CAPM holds, what is the beta for Stock B?
3) Suppose Stock B has a realized return of 20%. What is the CAPM Alpha (mispricing) of stock b?
Related Book For
Fundamentals Of Electric Circuits
ISBN: 9780073301150
3rd Edition
Authors: Matthew Sadiku, Charles Alexander
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