Think about the implications of the CAPM. You analyze two assets, stock X and stock Y,...
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Think about the implications of the CAPM. You analyze two assets, stock X and stock Y, and find the following relation: E[ry] - rf Cov[ry.rm] E[x]- Cov[rx.rm] where E[rx] and E[ry] are the expected returns on stock X and Y, respectively, ry is the risk-free rate of return, rm is the return on the market portfolio and Cov refers to the covariance. The market beta for stock X is 0.76 and the beta stock Y is 1.06. Based on this analysis, you conclude that: (Correct answer +3 points, incorrect answer -0.5 points, no answer 0 points) Select one: O a. Since X has a lower beta than Y, 0.76 < 1.06, the CAPM-prediction is fulfilled. O b. Stock y contains more risk than stock X and both are correctly priced. O c. Stock X contains more risk than stock Y and both are correctly priced. Od. I choose not to answer this question (Op). O e. Either y is underpriced or X is overpriced, or both mispricings occur at the same time. Of. Either X is underpriced or Y is overpriced, or both mispricings occur at the same time. ME Think about the implications of the CAPM. You analyze two assets, stock X and stock Y, and find the following relation: E[ry] - rf Cov[ry.rm] E[x]- Cov[rx.rm] where E[rx] and E[ry] are the expected returns on stock X and Y, respectively, ry is the risk-free rate of return, rm is the return on the market portfolio and Cov refers to the covariance. The market beta for stock X is 0.76 and the beta stock Y is 1.06. Based on this analysis, you conclude that: (Correct answer +3 points, incorrect answer -0.5 points, no answer 0 points) Select one: O a. Since X has a lower beta than Y, 0.76 < 1.06, the CAPM-prediction is fulfilled. O b. Stock y contains more risk than stock X and both are correctly priced. O c. Stock X contains more risk than stock Y and both are correctly priced. Od. I choose not to answer this question (Op). O e. Either y is underpriced or X is overpriced, or both mispricings occur at the same time. Of. Either X is underpriced or Y is overpriced, or both mispricings occur at the same time. ME
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The correct answer is Of Either X is underpriced or Y is overpriced or both mispricings occur at the same time The CAPM states that the expected retur... View the full answer
Related Book For
Financial management theory and practice
ISBN: 978-1439078099
13th edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
Posted Date:
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