Question: Question 2 Data for company X and Y are given below. The T-bill rate is 3.5% and the market risk premium is 8%. Company Company

Question 2

Data for company X and Y are given below. The T-bill rate is 3.5% and the market risk premium is 8%.

Company

Company X

Company Y

Forecasted return

13%

12%

Standard deviation of returns

9%

11%

Beta

1.4

0.9

required

What would be the fair return for each company according to the capital asset pricing model (CAPM)?

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