Find beta coefficients of the two securities

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Assume the CAPM is a true reflection of the market for securities. The risk-free rate of interest is 2% and its standard deviation of the market portfolio is 20%. The expected return of the market portfolio is 12%. There are two preferred stocks, which are both expected to pay a constant dividend of $10 forever. The first stock has a standard deviation of 20% and a correlation of 0.5 with the market returns, the second stock has a standard deviation of 25% and a correlation of 0.2 with the market portfolio.

a. What are the beta coefficients of the two securities? Which stock is more risky?

b. What are the expected returns of the two securities?

c. What are the current prices of the two securities?

Reference no: EM132726428

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