Stock E(R) Standard Deviation Correlation between the stock and the market portfolio A 13% 12% 0.9...
|
Stock |
E(R) |
Standard Deviation |
Correlation between the stock and the market portfolio |
|
A |
13% |
12% |
0.9 |
|
B |
11% |
16% |
0.5 |
|
C |
16% |
23% |
0.3 |
|
Standard Deviation for the market portfolio: 8% |
|||
|
Risk free rate of return: 3% |
|||
|
Market rate of return: 11% |
|||
a. Calculate the alpha of three stocks above and determine if each stock is underpriced or overpriced.
b. If you currently hold a market index portfolio, which stock is the best stock to add to your portfolio?
c. If you could invest only in T-bills and one of these portfolios, which would you choose?
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Stock
E(R)
Standard Deviation
Correlation between the stock and the market portfolio
A
13%
12%
0.9...
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