We are given the following data on 3 assets: Asset 1 2 Analysts PIM Expected...

Transcribed Image Text:

We are given the following data on 3 assets: Asset 1 2 Analysts σ₂ PIM Expected return 0.16 0.40 .4 .8 .8 .9 where PM is the correlation coefficient between r; and rM. Also, we have Erm = 0.24, M = 0.4. and rf = .06. (a) Find each asset's 3 and its expected return according to the CAPM. (b) Compare the expected return based on the CAPM with the analysts's expected return. Is the asset underpriced or overpriced? We are given the following data on 3 assets: Asset 1 2 Analysts σ₂ PIM Expected return 0.16 0.40 .4 .8 .8 .9 where PM is the correlation coefficient between r; and rM. Also, we have Erm = 0.24, M = 0.4. and rf = .06. (a) Find each asset's 3 and its expected return according to the CAPM. (b) Compare the expected return based on the CAPM with the analysts's expected return. Is the asset underpriced or overpriced?

Answer rating: 100% (QA)

To find each assets and its expected return according to the Capital Asset Pricing Model CAPM we can ... View the full answer