The rate of return on short-term T-bills (perceived to be risk-free) is 5%. The current market...

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The rate of return on short-term T-bills (perceived to be risk-free) is 5%. The current market price of stock H is $40. The stock H is expected to pay $1 dividends and to be sold at $43 a year from now. The stock H's correlation coefficient with the market portfolio is 0.3, and its standard deviation of return is 40%. The market portfolio's standard deviation is 20% and has a required risk premium of 7%. a. (5 points) Calculate the beta of stock H. [*.**] b. (8 points) Calculate and compare the expected return, required return, market price, and fair value. Would you buy or short sell stock H? c. (6 points) Is the market price of stock H in equilibrium? Why?(2 points) If not, how would equilibrium be achieved?(4 points) d. (6 points) The total risk of stock H can be measured by the variance of returns, i.e.. o (Hint: 0.16 Nondiversifiable risk + Diversifiable risk) 0.40² = 0.16. Calculate the level of diversifiable risk of stock H? The rate of return on short-term T-bills (perceived to be risk-free) is 5%. The current market price of stock H is $40. The stock H is expected to pay $1 dividends and to be sold at $43 a year from now. The stock H's correlation coefficient with the market portfolio is 0.3, and its standard deviation of return is 40%. The market portfolio's standard deviation is 20% and has a required risk premium of 7%. a. (5 points) Calculate the beta of stock H. [*.**] b. (8 points) Calculate and compare the expected return, required return, market price, and fair value. Would you buy or short sell stock H? c. (6 points) Is the market price of stock H in equilibrium? Why?(2 points) If not, how would equilibrium be achieved?(4 points) d. (6 points) The total risk of stock H can be measured by the variance of returns, i.e.. o (Hint: 0.16 Nondiversifiable risk + Diversifiable risk) 0.40² = 0.16. Calculate the level of diversifiable risk of stock H?

Answer rating: 100% (QA)

a The beta of stock H is calculated as beta correlation coefficient stock H standard deviation marke... View the full answer