Suppose that the CAPM is a valid description of security returns over the next 12 months...
Fantastic news! We've located the answer you've been seeking!
Question:
Transcribed Image Text:
Suppose that the CAPM is a valid description of security returns over the next 12 months and you, being a financial analyst, are analyzing some securities. You have the following data: 7, 6% E[r]=12% JM = 18% riskfree rate of return expected return on the market standard deviation of the market return a. Write down an equation that relates the expected return of a stock X, E[rx]. to its systematic risk. (5 points) b. What is the expected return of X if X's beta is 1.5? (5 points) c. Is it possible to have a stock A with expected return of 10% and standard deviation of 20%? Why or why not? (5 points) d. Is it possible to have a stock B with expected return of 18% and standard deviation of 24%? Why or why not? (5 points)
Expert Answer:
Answer rating: 100% (QA)
a The equation that relates the expected return of a stock X E x to its systematic risk beta x accor View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these accounting questions

The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 15. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...

Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...

Use (4.1), for a perfectly conducting fluid, and the nonlinear equation of continuity (1.1), to show that the change of B with time in a fluid element is related to changes of density according to...

How does the use of practical capacity further alleviate the issue identified in Question 16.15?

The New Zealand dollar to U.S. dollar exchange rate is 1.36, and the British pound to U.S. dollar exchange rate is 0.62. If you find that the British pound to New Zealand dollar were trading at 0.49,...

Construct a 15to1line multiplexer with two 8to1line multiplexers. Interconnect the two multiplexers and label the inputs such that any added logic required to have selection codes 0000 through 1110...

Presented below are five independent situations. All the companies involved use ASPE unless otherwise noted. 1. On December 31, 2017, Zarle Inc. sold equipment to Orfanakos Corp. and immediately...

Company X has a beta value of 1.3, the riskfree rate of return is 8% and the historical risk premium for shares over the riskfree rate of return has been 5%. Calculate the return expected on shares...

Hipster Optical Trial Balance Ma 31, 2023 Account Title 10 points eBook Print References Acct. No 101 106 124 128 163 201 230 301 302 403 623 640 690 Cash Accounts receivable Office supplies Prepaid...

Explain merge list.

Find Vo in the network shown using superposition 3 3

If the 10 K ohms resistor in the network shown absorbs 2.5 mW, find Vs. Vs 10 k

Find Io in the network shown using superposition 3 KCO 6W 2mA

Find Io in the network shown using superposition 1KL2

Find Io in the network shown using superposition. 2KL2 6KO 10 4mA 12V 4

Discuss briefly the following in relation to warehouse: Consolidation and breakbulk, Crossdocking; warehouse management systems (WMS). Your answer must not be plagiarized, make sure you check your...

What kind of financial pressures can an LBO cause?

Phil and Linda are 25yearold newlyweds and file a joint tax return. Linda is covered by a retirement plan at work, but Phil is not. a. Assuming Phil's wages were $27,000 and Linda's wages were...

Quince Interests is a partnership with a tax year that ends September 30, 2012. During that year, Potter, a partner, received $3,000 per month as a guaranteed payment, and his share of partnership...

Jan has two jobs during 2012. One employer withheld and paid FICA taxes on $66,600 of Jan's salary, and the other employer withheld and paid FICA taxes on $44,400 in salary paid to Jan. Calculate the...

Pipelines are used to transport natural gas over thousands of miles, with compressors (pumping stations) at regular intervals along the pipeline to compensate for the pressure drop due to flow....

How much entropy is generated per mole of chlorodifluoromethane that passes through the pressurereducing valve of the previous problem? Data From Previous Probem In a continuous manufacturing...

The thermoelastic effect is the temperature change that results from stretching an elastic material or fiber. The work done on the material is given by In the situation being considered here, the...
Question Categories