Question

Suppose the market risk premium is 6% and the risk-free interest rate is

4%. Using the data in the table,

calculate the expected return of investing in

a. Starbucks' stock.

b. Hershey's stock.

c. Autodesk's stock.

Why don't all investors hold Autodesk's stock rather than Hershey's stock?

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Answer 1

A) 4%+ 0.80(found in chart)* 6%= 0.088 or answer 8.8

B) 4%+ 0.33* 6%= 0.0598 or answer: 5.98

c) 4%+ 1.72* 6%= 0.1432 or answer 14.3

Why don't all investors hold Autodesk's stock rather than Hershey's stock?

Hershey's stock has less market risk, so investors don't need as high an expected return to hold it.