Use the following information to answer the questions Security Beta Standard Deviation Expected return S P 500 Risk free security Stock A Stock B Stock C 1 0 0 0 0 6 ( ) 1 2 20 0 15 30 25 8 0 4 0 ( ) 12 0 ( ) Figure out the market risk premium using S P 500 and Risk free security (10points) Figure outthe expected return for Stock A using CAPM (15points) Figure outthe beta for Stock B using CAPM (15points) Stock C has an average return of 10 Figure out the following the expected return using CAPM, the abnormal return, alpha () , Determine whether you buy or sell Stock C based on the alpha

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Question: Use the following information to answer the questions. Security Beta Standard Deviation Expected return S&P 500 Risk-free security Stock A Stock B Stock C 1.0

Use the following information to answer the questions.

Security

Beta

Standard Deviation

Expected return

S&P 500

Risk-free security

Stock A

Stock B

Stock C

1.0

0.0

0.6

( )

1.2

20%

15%

30%

25%

8.0%

4.0%

( )%

12.0%

( )%

Figure out the market risk premium using S&P 500 and Risk-free security. (10points)

Figure outtheexpected returnfor Stock Ausing CAPM. (15points)

Figure outthe betafor Stock Busing CAPM. (15points)
Stock C has an average returnof 10%. Figure out the following the expected return using CAPM, the abnormal return, alpha (). , Determine whether youbuy or sellStock C based on the alpha?

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