Given the data below, answer the following: a) Calculate the betas of stocks 1 and 2. b)

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Given the data below, answer the following:

a) Calculate the betas of stocks 1 and 2.

b) Calculate the beta of the portfolio.

c) Calculate the expected return of the portfolio using the CAPM.

d) According to the CAPM, would you classify stocks 1 and 2 as overvalued or undervalued.

e) For the risk-free rate, calculate its correlation with the market and its standard deviation.

f) Briefly discuss the main benefits and drawbacks of the CAPM, compared to other asset-pricing models.

Expected return Correlation with the market portfolio Standard deviation

Stock 1 11.25% 0.90 17%

Stock 2 7% 0.70 12%

Market portfolio 10% 1 13%

Risk free rate 3

Related Book For answer-question

Using And Interpreting Statistics

ISBN: 9781429278607

2nd Edition

Authors: Eric W. Corty

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Posted Date: Mar 15, 2023 02:36 AM

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Given the data below, answer the following: a) Calculate the betas of stocks 1 and 2. b)

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Expert Answer:

a To calculate the betas of stocks 1 and 2 we use the formula Beta CovarianceStock Market VarianceMarket For Stock 1 Beta1 CovarianceStock 1 Market Va... View the full answer

Using And Interpreting Statistics

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