3) You expect a risk free rate of 8% and a market risk premium of 6%....

3) You expect a risk free rate of 8% and a market risk premium of 6%. You ask a stockbroker what the firm’s research department expects for stocks “U”, “N”, and “D”. The broker responds with the following information:

Stock	Beta	Current Price	Expected Price	Expected Dividend
U	0.70	25	27	1.00
N	1.00	40	42	1.25
D	1.15	33	40	1.00

Compute the expected & required return for these three stocks, and plot them on an SML graph. Indicate what actions you take with regard to these stocks. Discuss your decisions.

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago

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