The following table shows estimates of the risk of two

The following table shows estimates of the risk of two well-known British stocks during the five years ending July 2001:

Standard Error of Beta Standard Deviation R? Beta British Petroleum (BP) British Airways 25 25 .90 .17 38 25 1.37 22


a. What proportion of each stock's risk was market risk, and what proportion was unique risk?

b. What is the variance of BP? What is the unique variance?

c.What is the confidence level on British Airways beta?

d.If the CAPM is correct, what is the expected return on British Airways? Assume a risk-free interest rate of 5 percent and an expected market return of 12 percent.

e. Suppose that next year the market provides a zero return. What return would you expect from BritishAirways?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...

Members

  • Access to 2 Million+ Textbook solutions
  • Ask any question from 24/7 available
    Tutors
$9.99
VIEW SOLUTION

OR

Non-Members

Get help from Corporate Finance Tutors
Ask questions directly from Qualified Online Corporate Finance Tutors .
Best for online homework assistance.