Question

You have been provided the following data on the securities of three firms, the market portfolio,...

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 .115 .26 .91
Firm B .135 .45 1.46
Firm C .116 .71 .30
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.)

Expected return              

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.)

Expected return              

b-4. What is your investment recommendation for someone with a well-diversified portfolio?

  • Buy

  • Sell



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.)

Expected return              

b-6. What is your investment recommendation for someone with a well-diversified portfolio?

  • Buy

  • Sell

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