Calculate the stock expected return

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Question 1:

Assume that the risk-free rate is 5% and that the market risk premium is 6%. What is the required return on the market, on a stock with a beta 1.0, and on a stock with a beta of 1.2?

Question 2

Calculate the stock's expected return, standard deviation, and coefficient of variation. The market and Stock J have the following probability distributions:

Probability rM rJ

0.3 15% 20%

0.4 9 5

0.3 18 12

a. Calculate the expected rates of return for the market and Stock J.

b. Calculate the standard deviations for the market and Stock J.

c. Calculate the coefficients of variation for the market and Stock J.

Question 3

Suppose you manage a $4 million fund that consists of four stocks with the following investments:

Stock Investment Beta

A $ 400,000 1.50

B 600,000 -0.50

C 1,000,000 1.25

D 2,000,000 0.75

If the market's required rate of return is 14% and the risk-free rate is 6%, what is the fund's required rate of return?

Reference no: EM132566042

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