Stock A has expected return of 15% and standard deviation (s.d.) 20%. Stock B has expected return 20% and s.d. 15%. The two stocks have a correlation coefficient of 0.5. Protfolio P1 A B Expected Return 15% 20% SD 20% 15% Correlation Coff. 0.5 0.5 Weights 30% 70% The beta of stock A is 1 and the beta of stock B is 1.5. What is the risk premium on the market portfolio, if the CAPM holds ? Stock D has a beta of 1.2 and expected return 18%. Is this stock overvalued, if the CAPM holds?
Stock A has expected return of 15% and standard deviation (s.d.) 20%. Stock B has expected return 20% and s.d. 15%. The two stocks have a correlation coefficient of 0.5. Protfolio P1 A B Expected Return 15% 20% SD 20% 15% Correlation Coff. 0.5 0.5 Weights 30% 70% The beta of stock A is 1 and the beta of stock B is 1.5. What is the risk premium on the market portfolio, if the CAPM holds ? Stock D has a beta of 1.2 and expected return 18%. Is this stock overvalued, if the CAPM holds?
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 1P: The standard deviation of stock returns for Stock A is 40%. The standard deviation of the market...
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Stock A has expected return of 15% and standard deviation (s.d.) 20%. Stock B has expected return 20% and s.d. 15%. The two stocks have a correlation coefficient of 0.5.
Protfolio P1 | ||
A | B | |
Expected Return | 15% | 20% |
SD | 20% | 15% |
Correlation Coff. | 0.5 | 0.5 |
Weights | 30% | 70% |
The beta of stock A is 1 and the beta of stock B is 1.5. What is the risk premium on the market portfolio, if the CAPM holds ?
Stock D has a beta of 1.2 and expected return 18%. Is this stock overvalued, if the CAPM holds?
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