Based on the past 3 years’ weekly returns, we find the covariance of a firm’s return with market return is 0.5, the variance of firm’s stock returns is 0.4, and the variance of market returns is 0.2. Based on a 5% expected market return, and a 1% risk-free rate, what should be the expected stock return of the firm?
Based on the past 3 years’ weekly returns, we find the covariance of a firm’s return with market return is 0.5, the variance of firm’s stock returns is 0.4, and the variance of market returns is 0.2. Based on a 5% expected market return, and a 1% risk-free rate, what should be the expected stock return of the firm?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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10) Based on the past 3 years’ weekly returns, we find the covariance of a firm’s return with market return is 0.5, the variance of firm’s stock returns is 0.4, and the variance of market returns is 0.2. Based on a 5% expected market return, and a 1% risk-free rate, what should be the expected stock return of the firm?
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