NO2.6 A small market consists of three stocks, A, B, and C. and their financial data and projection are presented below. Assume CAPM holds.Please see the attached picture. StockNumber of sharesStock PriceBetaA750331.2В220510.8460191.4EconomicconditionProbabilityAВCВoom20%20%22%23%Normal50%15%10%12%Recession30%2%5%7%Find:a) the expected return and standard deviation on this portfolio.b) the expected return on the market using portfolio beta if R-5%.

Expected return on a portfolio is the minimum rate of return that an investor expects to receive on…

Answered: a) the expected return and standard…

a) the expected return and standard deviation on this portfolio. b) the expected return on the market using portfolio beta if RF5%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 20P

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Question

NO2.6 A small market consists of three stocks, A, B, and C. and their financial data and projection are presented below. Assume CAPM holds.

Please see the attached picture.

Stock
Number of shares
Stock Price
Beta
A
750
33
1.2
В
220
51
0.8
460
19
1.4
Economic
condition
Probability
A
В
C
Вoom
20%
20%
22%
23%
Normal
50%
15%
10%
12%
Recession
30%
2%
5%
7%
Find:
a) the expected return and standard deviation on this portfolio.
b) the expected return on the market using portfolio beta if R-5%.

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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