# You have observed the following returns over time: Assume that the risk-free rate is 6 percent and

## Question:

You have observed the following returns over time:

Assume that the risk-free rate is 6 percent and the market risk premium is 5 percent.

a. What are the betas of Stocks X and Y?

b. What are the required rates of return for Stocks X and Y?

c. What is the required rate of return for a portfolio consisting of 80 percent of Stock X and 20 percent of Stock Y?

d. If Stock X's expected return is 22 percent, is Stock X under- or overvalued?

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... Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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**Related Book For**

## Financial management theory and practice

**ISBN:** 978-0324422696

12th Edition

**Authors:** Eugene F. Brigham and Michael C. Ehrhardt