In: Finance
Consider the following
information for stocks A, B, and C. The returns on the three stocks...
Consider the following
information for stocks A, B, and C. The returns on the three stocks
are positively correlated, but they are not perfectly correlated.
(That is, each of the correlation coefficients is between 0 and
1.)
Stock |
Expected
Return |
Standard
Deviation |
Beta |
A |
9.69% |
|
14% |
|
0.9 |
B |
10.92 |
|
14 |
|
1.2 |
C |
12.56 |
|
14 |
|
1.6 |
Fund P has one-third
of its funds invested in each of the three stocks. The risk-free
rate is 6%, and the market is in equilibrium. (That is, required
returns equal expected returns.)
- What is the market risk
premium (rM - rRF)? Round your answer to two
decimal places.
%
- What is the beta of Fund P? Do
not round intermediate calculations. Round your answer to two
decimal places.
- What is the required return of
Fund P? Do not round intermediate calculations. Round your answer
to two decimal places.
%
- Would you expect the standard
deviation of Fund P to be less than 14%, equal to 14%, or greater
than 14%?
- Less than 14%
- Greater than 14%
- Equal to 14%