You are using the CAPM to calculate a fair return for Stardust Inc. common stock. The market has a volatility of 12.00 %, while the shares have a volatility of 11.00 %. The correlation between the two sets of returns is -0.31. The risk free rate is 3.10%, while the expected return on the market is 6.70%. What is the fair return for Stardust common stock? O 1.98% O 2.08% O 1.88% O 1.20%
You are using the CAPM to calculate a fair return for Stardust Inc. common stock. The market has a volatility of 12.00 %, while the shares have a volatility of 11.00 %. The correlation between the two sets of returns is -0.31. The risk free rate is 3.10%, while the expected return on the market is 6.70%. What is the fair return for Stardust common stock? O 1.98% O 2.08% O 1.88% O 1.20%
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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Transcribed Image Text:You are using the CAPM to calculate a fair return for Stardust Inc. common stock. The market has a volatility of 12.00%, while the shares have a volatility of 11.00%. The correlation between the two sets of returns is -0.31. The risk free rate is 3.10%, while the expected return on the market is 6.70%. What is
the fair return for Stardust common stock?
1.98%
O 2.08%
1.88%
O 1.20%
Expert Solution
Step 1
Beta is the measure of the systematic risk of a stock. It measures the volatility of the stock with respect to the market.
It can be calculated using the below formula:
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