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What is the expected rate of return of stock

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Reference no: EM133056893

Consider three stocks

 

β

σ(%)

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 themarket returns is 18%. Assume that the next dividend will paid after one year, att= 1

1. According to CAPM, what is the expected rate of return of each stock?

2. What should today's price be for each stock, assuming CAPM is correct?

Reference no: EM133056893

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