Solution-Expected rate of return of stock

Expected rate of return of stock

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Reference no: EM133057442

Consider three stocks

	Beta	Standard deviation	Dividend	stock price
Q	0,45	35 %	0,5	45
R	1,45	40 %	0	75
S	-0,2	40 %	1	20

Use a risk free rate of 2% and an expected market return of 9.5%. The standard deviation of the market returns is 18%. Assume that the next dividend will be paid after one year, at t= 1.

1. According to CAPM, what is the expected rate of return of each stock and What should today's price be for each stock, assuming CAPM is correct?

Reference no: EM133057442

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Expected rate of return of stock

Reference no: EM133057442

Reference no: EM133057442

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