From the following market data:

 

Calculate the Beta of each stock.

Stock 1 Beta =

Stock 2 Beta =

Which stock is more sensative to market risk?

2)The Rf = 2% and the return of the ASX200 = 10%. The ASX200 is a share index that can be used to proxy the return of the market.


The E(R) of stock 1 is


The E(R) of stock 2 is


3)A market analyst estimates that the E(r) for Stock 1 as 21% and Stock 1 as 1%.

Comparing these to the appropriate CAPM E(r), the market analyst return estimates will lead to......of Stock 1


Comparing these to the appropriate CAPM E(r), the market analyst return estimates will lead to......of Stock 2


This is because the E(r) is used as the discount rate to value the cash flows of the stock and using a discount rate that is too.........will result in underpricing

This is because the E(r) is used as the discount rate to value the cash flows of the stock and using a discount rate that is too.........will lead to overpricing.

Transcribed Image Text:

Mth Returns 1 2 3 4 5678 Market 0.05 0.04 0.03 0.03 0.045 0.06 0.07 0.09 Stock 1 0.13 0.11 0.05 0.02 0.07 0.12 0.14 0.17 Stock 2 0.09 0.09 0.08 0.06 0.06 0.07 0.08 0.09 Mth Returns 1 2 3 4 5678 Market 0.05 0.04 0.03 0.03 0.045 0.06 0.07 0.09 Stock 1 0.13 0.11 0.05 0.02 0.07 0.12 0.14 0.17 Stock 2 0.09 0.09 0.08 0.06 0.06 0.07 0.08 0.09

Answer rating: 100% (QA)

To calculate the beta of each stock you need the historical market returns and the returns of each stock Since you provided the monthly returns for bo... View the full answer