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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