Question 6 A security analyst at CIBC securities has summarized information on three firms and the...

Transcribed Image Text:

Question 6 A security analyst at CIBC securities has summarized information on three firms and the market as follows. The risk free rate is 3%, the market risk premium (E(Rm) - Rf) is 6%, and the standard deviation of returns of the market portfolio is 18%. Security A 0.40 30% Correlation with market portfolio Security B 0.70 Standard deviation of security returns Estimated Security Returns 40% Security C 0.85 24% See Part B 12% 10% PART A Determine the CAPM expected or required rate of return for securities A, B and C using the information given above, and enter your answer below as a percentage to two decimal places. Expected return of Security A is Expected return of Security B is Expected return of Security C is PART B Security A is currently trading at $25. The CIBC analyst has estimated that the price of Security A in one year can reach $29, $27, or $23 with probabilities 25%, 50% and 25% respectively. Calculate the estimated one year return for security A (express your answer as a percentage to 2 decimal places and do not round intermediate steps). Estimated one year return for security A is PART C Use the following three terms --> "Over Priced ", " Under Priced ", or " Fairly Priced" to describe security A, B and C below. Security A is Security B is Security C is Question 6 A security analyst at CIBC securities has summarized information on three firms and the market as follows. The risk free rate is 3%, the market risk premium (E(Rm) - Rf) is 6%, and the standard deviation of returns of the market portfolio is 18%. Security A 0.40 30% Correlation with market portfolio Security B 0.70 Standard deviation of security returns Estimated Security Returns 40% Security C 0.85 24% See Part B 12% 10% PART A Determine the CAPM expected or required rate of return for securities A, B and C using the information given above, and enter your answer below as a percentage to two decimal places. Expected return of Security A is Expected return of Security B is Expected return of Security C is PART B Security A is currently trading at $25. The CIBC analyst has estimated that the price of Security A in one year can reach $29, $27, or $23 with probabilities 25%, 50% and 25% respectively. Calculate the estimated one year return for security A (express your answer as a percentage to 2 decimal places and do not round intermediate steps). Estimated one year return for security A is PART C Use the following three terms --> "Over Priced ", " Under Priced ", or " Fairly Priced" to describe security A, B and C below. Security A is Security B is Security C is