Guess for the rate of return of the stock

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Investors expect the market rate of return in the coming year to be 12%. T-Bills rate is 4% and stock Y has a beta of 0.5. The market value of its outstanding equity is $100m

a. Using the CAPM what is your guess for the rate of return of the stock?

b. If next year the market return is 10% what is your best guess for the return of Y?

c. Suppose that Y wins an important court case with a settlement of $5m. Its return during the year turns out to be 10%- what is your best guess about how much the market expected Y to receive from the court case? (Assume that the markets return is 10% and there were no further news)

Reference no: EM133057198

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