The risk-free rate of return is 3.7 percent. The risk premium on the market portfolio is...

Question

Question

Answer 1

Answer #1

As per CAPM, expected return = Risk free return + beta*Market return premium
Stock	Beta	CAPM Return	Expected Return
1	0.64	9.33	9.47
2	0.97	12.24	12.03
3	1.22	14.44	14.44
4	1.37	15.76	15.8
5	1.68	18.48	18.37

Hence, the answer is Stock #3
As CAPM return is same as expected return

Answer 2

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