Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a share of common stock. Your research shows the following: Beta = βi = 1.54 Risk free rate = Rf = 2.5% per year Market return = E(RM) = 6.5% per year Based on this information, answer the following: A. Based on the beta, how does the stock's risk compare to the market overall? On what do you base your answer? B. Based on the beta, how would you expect the stock's returns to react to a decrease in returns in the market overall? Why? C. According to the CAPM and the information given above, what is the expected return E(Ri) for this stock? D. If the required rate of return on this stock were 7% per year, would you invest? Why or why not?
Assume that you are using the
Beta = βi = 1.54
Risk free rate = Rf = 2.5% per year
Market return = E(RM) = 6.5% per year
Based on this information, answer the following:
A. Based on the beta, how does the stock's risk compare to the market overall? On what do you base your answer?
B. Based on the beta, how would you expect the stock's returns to react to a decrease in returns in the market overall? Why?
C. According to the CAPM and the information given above, what is the expected return E(Ri) for this stock?
D. If the required
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