Question 9
Based on CAPM,
Expected Return on Stock = Risk free rate + Beta * Market Risk premium
A) For Stock ABC,
Expected Return on Stock = 2% + 1.1 * 5%
Expected Return on Stock = 2% + 5.5% = 7.50%
B) For Stock XYZ,
8.4% = 2% + Beta * 5%
6.4% = Beta * 5%
Beta = 1.28
Number 9 8 - Redo Ch. 6, problem #8 assuming that all of the information is the same except tha is 14%, the standard dev...
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