Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? (picture) Stock AStock BMarket22%Standard Deviation ReturnCorrelation Coefficient between A & MCorrelation Coefficient between B & MExpected Market ReturnRisk-Free rate of return30%30%-30%30%11%5%

The Capital Asset Pricing Model(CAPM) refers to the relationship between expected return for assets…

Answered: Stock A Stock B Market Standard…

Stock A Stock B Market Standard Deviation Return Correlation Coefficient between A & M Correlation Coefficient between B & M Expected Market Return Risk-Free rate of return 30% 30% 22% 30% 30% 11% 5%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 3P: Two-Asset Portfolio Stock A has an expected return of 12% and a standard deviation of 40%. Stock B...

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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

Ahmed observed the following data of two stocks as shown in the below table. Which stock do you advise Ahmed to select according to the required rate of return? And explain why? (picture)

Stock A
Stock B
Market
22%
Standard Deviation Return
Correlation Coefficient between A & M
Correlation Coefficient between B & M
Expected Market Return
Risk-Free rate of return
30%
30%
-30%
30%
11%
5%

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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