You have the following information: cov (r,m)=0.5 cov (B,M)=0.25 m covrc,r=0.75 cov r,r=0.5 m The market...

 

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You have the following information: cov (r,m)=0.5 cov (B,M)=0.25 m covrc,r=0.75 cov r,r=0.5 m The market excess return is 5% and the risk-free rate is 2%. a) Compute the beta for the three stocks. b) What does a beta bigger than one imply? c) Compute the expected return based on CAPM. d) If you invest 20% in A, 30% in B, and 50% in C, compute the beta and excess return of such a portfolio. e) If the realized/observed return of stock A, B, and C are 7.5%, 4%, and 13% respectively, is there an alpha? f) Based on your answer to e), is CAPM valid? You have the following information: cov (r,m)=0.5 cov (B,M)=0.25 m covrc,r=0.75 cov r,r=0.5 m The market excess return is 5% and the risk-free rate is 2%. a) Compute the beta for the three stocks. b) What does a beta bigger than one imply? c) Compute the expected return based on CAPM. d) If you invest 20% in A, 30% in B, and 50% in C, compute the beta and excess return of such a portfolio. e) If the realized/observed return of stock A, B, and C are 7.5%, 4%, and 13% respectively, is there an alpha? f) Based on your answer to e), is CAPM valid?