Stock ABC has beta of 1.2. The risk-free rate is 5%, and the market expected rate...

Stock ABC has beta of 1.2. The risk-free rate is 5%, and the market expected rate of return is 14%. My estimation shows that the stock of ABC has alpha of 3% over a one-year period horizon. I have $20,000 in my account and I also want to “buy on margin” to buy as much ABC as possible. Initial margin requirement is 50% and I am supposed to pay back 5% annually compounded interest on it. What is the rate of return of my investment on ABC in a period of one year?

Please explain steps, Thanks!

Expert Solution

jeff jeffy answered 2 years ago

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