4) You are considering an investment in firm ABC. You know the risk free rate is...

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4) You are considering an investment in firm ABC. You know the risk free rate is 3.5%, the expected return on the market portfolio is 8.8%, and the standard deviation of the market portfolio is 15.35%. You also know that stock ABC has a standard deviation of 45.3% but it is uncorrelated with the market portfolio. a) What is the beta of stock ABC? b) According to the CAPM, what is the expected return on stock ABC? c) You know that firm ABC has a higher standard deviation than the market portfolio. How do you explain the return in part (b) and the fact that is has a high standard deviation? In particular, what do you know about the risk? 4) You are considering an investment in firm ABC. You know the risk free rate is 3.5%, the expected return on the market portfolio is 8.8%, and the standard deviation of the market portfolio is 15.35%. You also know that stock ABC has a standard deviation of 45.3% but it is uncorrelated with the market portfolio. a) What is the beta of stock ABC? b) According to the CAPM, what is the expected return on stock ABC? c) You know that firm ABC has a higher standard deviation than the market portfolio. How do you explain the return in part (b) and the fact that is has a high standard deviation? In particular, what do you know about the risk?

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ABC Investment Analysis a Beta of Stock ABC Since ABC is uncorrelated with the market portfolio its ... View the full answer