Question

The market risk premium for next period is 6.70% and the risk-free rate is 3.10%. Stock Z has a beta of 0.74 and an expected return of 11.40%. What is the:

a) Market's reward-to-risk ratio?

b) Stock Z's reward-to-risk ratio

Answer #1

Rewards to Risk is calculated by _ _ _ _(Tremors Ratio)

i)

Market Return to Risk Ratio =
= **3.6** _ _ _ (Beta of Market is always 1)

ii)

Stock Z Return to Risk Ratio =
= **10.73**

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