Q6 Q6-Correlation and Beta You have been provided the following data about thesecurities of three firms, the market portfolio, and the risk-free asset:SecurityExpected ReturnStandard DeviationCorrelation*BetaFirm A.10.31(i).85Firm B.14(ii).501.40Firm C.16(ii).65.35The market portfolio.12.20(iv)(v)The risk-free asset.05(vi)(vii)(viii)*With the market portfolio.a. Fill in the missing values in the table.b. Is the stock of Firm A correctly priced according to the capital asset pricingmodel (CAPM)? What about the stock of Firm B? Firm C? If these securities arenot correctly priced, what is your investment recommendation for someone witha well-diversified portfolio?

Risk free rate (Rf) = 0.05 Market return (Rm) = 0.12 Market standard deviation (Sm) = 0.20

Correlation and Beta You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: Security Expected Return Standard Deviation Correlation* Beta Firm A .10 .31 (i) .85 Firm B .14 (i) .50 1.40 Firm C .16 (ii) .65 .35 The market portfolio .12 .20 (iv) The risk-free asset .05 (vi) (vii) (vii) *With the market portfolio. a. Fill in the missing values in the table. b. Is the stock of Firm A correctly priced according to the capital asset pricing model (CAPM)? What about the stock of Firm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversified portfolio?

Correlation and Beta You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset: Security Expected Return Standard Deviation Correlation* Beta Firm A .10 .31 (i) .85 Firm B .14 (i) .50 1.40 Firm C .16 (ii) .65 .35 The market portfolio .12 .20 (iv) The risk-free asset .05 (vi) (vii) (vii) *With the market portfolio. a. Fill in the missing values in the table. b. Is the stock of Firm A correctly priced according to the capital asset pricing model (CAPM)? What about the stock of Firm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversified portfolio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 16P

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