Description
You have been provided the following data on the securities of three firms, the market portfolio, and the risk-free asset:
a. Fill in the missing values in the table. (Leave no cells blank – be certain to enter 0 wherever required. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Security | Expected Return | Standard Deviation | Correlation* | Beta |
Firm A | .105 | .36 | .80 | |
Firm B | .145 | .55 | 1.35 | |
Firm C | .165 | .60 | .40 | |
The market portfolio | .12 | .20 | ||
The risk-free asset | .05 | |||
*With the market portfolio.
b-1. According to the CAPM, what is the expected return of Firm A’s stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-2. What is your investment recommendation for someone with a well-diversified portfolio?
Sell
Buy
b-3. According to the CAPM, what is the expected return of Firm B’s stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-4. What is your investment recommendation for someone with a well-diversified portfolio?
Sell
Buy
b-5. According to the CAPM, what is the expected return of Firm C’s stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b-6. What is your investment recommendation for someone with a well-diversified portfolio?
Sell
Buy
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