Compute the stocks expected return

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Reference no: EM131188131

Suppose a market expected return of 10% and a riskless rate of 6%. Assume the CAPM.

a) A stock has correlation of 0.8 with the stock market, standard deviation of 30%, and the market standard deviation is 20%. Compute the stock's expected return.

b) Assume both borrowing and lending are possible at the riskless rate. Show how an investor can achieve a portfolio with 1.0 beta by

i. only taking positions in a riskless security and a portfolio with beta 0.8;

ii. only taking positions in a riskless security and a portfolio with beta 1.5.

c) A stock has an expected return of 4%. Compute the beta of the security and argue for or against holding a position in the security.

Reference no: EM131188131

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