View the step-by-step solution to:

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?

Which one of the following stocks is correctly priced if the risk-free rate of return is 3.6% and the market rate of return is 10.5%?
Stock Beta Expected Return
A .85 9.2%
B 1.08 11.8%
C 1.69 15.3%
D .71 7.8%
E 1.45 12.3%
I do it two ways and I get either B or C. Please show all calculations.
Sign up to view the entire interaction

Top Answer

Dear Student Find attached the answer... View the full answer

Answer 5.docx

Answer
Expected return = Risk free rate + beta (market rate – risk free rate)
Stock A = 3.6% + 0.85 (10.5%-3.6%) = 9.465%
Stock B = 3.6% + 1.08 (10.5%-3.6%) = 11.052%
Stock C = 3.6% + 1.69...

Sign up to view the full answer

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
Ask a homework question - tutors are online