Question
In: Finance
Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%....
Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%.
- Draw the Security Market Line (SML).
- Stock X and Y have the following parameters.
|
X |
Y |
|
|
Beta (β) |
0.6 |
1.2 |
|
Beginning Value |
K20 |
K10 |
|
Dividend Value |
K2 |
K1 |
|
End Value |
K21 |
K10 |
- Calculate the returns according to the Capital Asset Pricing Model (CAPM) utilising the market return you plotted in part A.
- Calculate the returns according to the values given in the above parameters.
- Plot stocks X and Y on the SML in part A. clearly indicating the return calculated in parts I. and II.
What investment strategy would you recommend for stocks X and Y? Clearly explain your reason for yo
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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