Formulas for Quiz 4 = required return;=rf + Bi(E[rm] -rf) Bp = wi + w2w + + wnn Pt+1 + Divt+1 Pt Rt +1= Pt 1 Variance(?) = (1 - 1)[(R3 R)2 + (R2 R)? + ... + (R R)?] ET - Rt t=2 R= T - 1 = Standard Deviation(o) = V Variance Oi Bi= Pi,m Om NetDebt Equity WACC = rEquity NetDebt + Equity + rDebt: (1 t) NetDebt + Equity 1. You know that Wal-Mart stock is expected to have a standard deviation of 17% and a beta of 1.6 in the next year, and Target stock is expected to have a standard deviation of 26% and a beta of 0.91. a. (1 pt) Which stock has more idiosyncratic risk? b. (1 pt) Which stock is riskier in a well-diversified portfolio? 2. (1 pt) When is it appropriate to use the capital asset pricing model? 3. (1 pt) What components go into determining what a return is? (Think what things am I being compensated for?)