Correlation and Beta You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: Security Expected Return Standard Deviation Correlation* Beta Firm A .10 .31 (i) .85 Firm B .14 (i) .50 1.40 Firm C .16 (ii) .65 .35 The market portfolio .12 .20 (iv) The risk-free asset .05 (vi) (vii) (vii) *With the market portfolio. a. Fill in the missing values in the table. b. Is the stock of Firm A correctly priced according to the capital asset pricing model (CAPM)? What about the stock of Firm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversified portfolio?
Correlation and Beta You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: Security Expected Return Standard Deviation Correlation* Beta Firm A .10 .31 (i) .85 Firm B .14 (i) .50 1.40 Firm C .16 (ii) .65 .35 The market portfolio .12 .20 (iv) The risk-free asset .05 (vi) (vii) (vii) *With the market portfolio. a. Fill in the missing values in the table. b. Is the stock of Firm A correctly priced according to the capital asset pricing model (CAPM)? What about the stock of Firm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversified portfolio?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 4P
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