FREE Trial

Consider these three stock returns with the following annualised characteristics: Expected Return Standard deviation Beta 1.5 Stock A 15%...

This problem has been solved!
Do you need an answer to a question different from the above? Ask your question!

Question:

Transcribed Image Text:

Consider these three stock returns with the following annualised characteristics: Expected Return Standard deviation Beta 1.5 Stock A 15% Stock B 9% Stock C2% 25% 21% 10% 1.1 0.3 According to the Capital Asset Pricing Model (CAPM), which stock is a better buy, when the market's expected return is 8%, and risk-free rate is 4%? What is the alpha of each stock? Plot the Security Market Line (SML) and each stock's risk-return point on one graph. [10 marks]

Expert Answer:

Answer rating: 100% (QA)

To determine which stock is a better buy according to the Capital Asset Pricing Model CAPM we can calculate the expected return for each stock and com View the full answer


answer-question
Related Book For  answer-question
Income Tax Fundamentals 2013

Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

See More Books
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Posted Date: June 17, 2023 04:38:00

Students also viewed these finance questions

Q:
1. The famous capital asset pricing model or CAPM is a single factor model that characterizes the portion of an assets total return that results from systematic movements in the broader market. It is...
A:
To answer the questions posed let s go through each part step by step a Interpretation of the model from a financial perspective The estimated coefficients of the three factor model for Apple are as f......
Q:
There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The return on the market has a mean of 12% and a standard deviation of 20%. The risk-free asset...
A:
Click to View...
Q:
A labor rate variance is due solely to the difference A Between budgeted labor price and actual labor price SO D (B) Between budgeted materials price and actual materials price (C) Between budgeted...
A:
Answer Correct Option D Between budgeted direct labor hours and actual direct labo......
Q:
Your firm needs to decide how much to ship along each route AND which of the new stores to open. Opening Gamma incurs a fixed cost of $225. Opening Omega incurs a fixed cost of $200. The relevant...
A:
Click to View...
Q:
Its Just Lunch is a nationwide service company that arranges lunch dates for clients. Its Just Lunch collects cash up front for a package of dates. Suppose your group is opening an Its Just Lunch...
A:
Requirement 1 The business will use the accrual basis of accounting because it provides more complete information than the cash basis Under accrual ba......
Q:
Refer to the FL Student Survey data file on the text CD. Using software, conduct a regression analysis using y = college GPA and predictors high school GPA and sports (number of weekly hours of...
A:
The reports will be different for each student but could include the following along......
Q:
For a binomial model for the price of a nondividend-paying stock, you are given: (i) The length of each period is 1 year. (ii) The current price of the stock is 120. (iii) u = 1.15, where u is one...
A:
Click to View...
Q:
Valuing Perpetuities Live Forever Life Insurance Co. is selling a perpetuity contract that pays $1,200 monthly. The contract currently sells for $63,000. What is the monthly return on this investment...
A:
Here we need to find the interest rate that equates the perpetuity cash flows with the PV of......
Q:
..A.29.0..kHz,.16.0. V source connected to an inductor produces a 3.60 A current. What is the inductance? using Ohm's law Review the definition of inductive reactance. H A 13.6 H inductor is...
A:
1 Given frequency f 29 kHz voltage V 16 volt Current I 3 6 Ampere Inductive reac......
Q:
Start of Payroll Project 7-3a October 9, 20-- No. 1 The first payroll in October covered the two workweeks that ended on September 26 and October 3. This payroll transaction has been entered for you...
A:
Here are the tables for the journals described in the passage Journal 1 Date Account Debi......
Q:
A company has a total of 200 employees. The company's payroll is audited, and the following information is obtained: Total salaries and wages paid during the year: $10,000,000 Total payroll taxes...
A:
The detailed answer for the above question is provided below a The total number of employees receivi......
Q:
You need a DAC that can span 12 V with a resolution of 20 mV or less. How many bits are needed?
A:
To determine the number of bits needed for a DAC that can span 12 V with a resoluti......
Q:
What is the ratio of heights to which ethyl alcohol and water are raised by capillary action in the same glass tube?
A:
The height to which a liquid is raised through capillary action is given by the following equa......
Q:
(a) Define binary-weighted resistor network. (b) Define R/2R ladder network. (c) Define DAC settling time. (d) Define full-scale error. (e) Define offset error.
A:
a Binary Weighted Resistor Network Definition A binary weighted resistor network is a type of digital to analog converter DAC architecture In this des......
Q:
Which is (a) The smallest atom in group 13; (b) The smallest of the following atoms: Te, In, Sr, Po, Sb? Why?
A:
a The group 13 elements or boron family consists of six elements boron B......
Q:
One half-cell in a voltaic cell is constructed from a copper wire electrode in a 4.8 10 3 M solution of Cu(NO 3 ) 2 . The other half-cell consists of a zinc electrode in a 0.40 M solution of Zn(NO 3...
A:
Let s calculate the cell potential We re given the following information One half cell in a voltaic......
Q:
Blossom Company began 2022 with total stockholders equity of $1291000, including retained earnings of $940000. During the year, the company issued $1316000 of common stock, recorded expenses of...
A:
Blossom Company Year 2022 Statement showing calculation of Revenue for 2022 Particulars......
Q:
You are the newly appointed tax practitioner to complete Emilys tax return and have downloaded the prefill report for Emilys tax return (hint, you can read what a prefill report is here (Links to an...
A:
Answer 1 Taxable income is the portion of an individual s or a company s income used to calculate ho......
Q:
Mallory Corporation has a calendar year-end. The corporation has paid estimated payments of $10,000 during 2012 but still owes an additional $5,000 for its 2012 tax year. a. When is the 2012 tax...
A:
a March 15 2013 b September 15......
Q:
Patty Bayan is a single taxpayer living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2012, Patty has no dependents, and her W-2 from her job at a local...
A:
The solutions presented here show 2012 tax calculations on 2011 forms and schedules Form 1040EZ Your first name and initial Patty If a joint return spouse s first name and initial Foreign country nama......
Q:
Lisa Sizemore, a taxpayer in the 10-15 percent tax bracket, purchased stock as an investment on July 11, 2011. She sold the stock on July 9, 2012, 2 days before qualifying for the long-term holding...
A:
It is a big deal Lisa is legally required to report th......
Banks And Politics During The Progressive Era The Origins Of The Federal Reserve System 1897–1913 1st Edition - ISBN: 0415528542 - Free Book