Solution-Standard error of equity beta

Standard error of equity beta

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Reference no: EM131083640

The CFO of AAA Inc., a publicly traded firm, makes the following statement: "Our firm is in the business of pharmaceuticals.

Our equity beta is 2.4, the standart error of equity beta is 0.27, r-squared is 0.37 and standart deviation of stock returns is 29%. The risk-free rate is 2%.

Next year, when we expect the market to provide a zero return, I expect the firm to outperform the market and provide a return of 4% on equity."

a). If the CAPM is correct, what % of the risk of AAA is unique risk?

b). What return would you expect from AAA next year?

c). Is the CFO correct in her assessment, too pessimistic, too optimistic?

Reference no: EM131083640

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Standard error of equity beta

Reference no: EM131083640

Reference no: EM131083640

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