Stock Y has a beta of 1.2 and an expected return of 14.5 percent. Stock Z has a beta of .7 and an return of 9.3 percent. If the risk-free rate is 5.6 percent and the market risk premium is 6.6 percent,
Stock Y has a beta of 1.2 and an expected return of 14.5 percent. Stock Z has a beta of .7 and an return of 9.3 percent. If the risk-free rate is 5.6 percent and the market risk premium is 6.6 percent,
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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![Problem 13-18 Reward-to-Risk Ratios [LO4]
Stock Y has a beta of 1.2 and an expected return of 14.5 percent. Stock Z has a beta of .7 and an expected
return of 9.3 percent. If the risk-free rate is 5.6 percent and the market risk premium is 6.6 percent, the reward-to-risk
ratios for Stocks Y and Z are
1.30 percent, respectively. Since
and Stock Z is
overvalued
9.83 x
and
undervalued
percent, Stock Y is
the SML reward-to-risk is
6.60
(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fd7b6ce77-7d1f-42c7-90fc-6e082dc1db1b%2F03249be8-8c9d-4670-af9b-957eaeb59f7c%2F6w8eda_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 13-18 Reward-to-Risk Ratios [LO4]
Stock Y has a beta of 1.2 and an expected return of 14.5 percent. Stock Z has a beta of .7 and an expected
return of 9.3 percent. If the risk-free rate is 5.6 percent and the market risk premium is 6.6 percent, the reward-to-risk
ratios for Stocks Y and Z are
1.30 percent, respectively. Since
and Stock Z is
overvalued
9.83 x
and
undervalued
percent, Stock Y is
the SML reward-to-risk is
6.60
(Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
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