a
Adequate information:
Expected return of Stock A
Expected return of Stock B
Expected return of Stock C
Expected return of the market
Beta of Stock A
Beta of Stock B
Beta of Stock C
Beta of the market
To compute: Market model equation for each stock.
Introduction: The market model equation for a stock is a mathematical equation consisting of the expected return, beta, market return, expected market return, and the unsystematic risk of the stock.
b
Adequate information:
Weight of Stock A
Weight of Stock B
Weight of Stock C
To compute: Return on the portfolio
Introduction: The return on portfolio refers to the weighted average return on each of the stocks in the investment portfolio.
c
Adequate information:
Return on the market
To compute: Return on each stock and portfolio
Introduction: The return on portfolio refers to the return on each of the stocks proportionately as per their weightage in the portfolio.
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Corporate Finance
- 1) what is the expected return rate for stock A 2) what is the expected return rate for stock B 3) what is the standard deviation of returns for stock A 4) what is the standard deviation of returns for stock B.arrow_forwardConsider information given in the table below and answers the question asked thereafter: State Probability return on stock A Return on stock B A 0.15 10% 9% B 0.15 6% 15% C 0.10 20% 10% D 0.18 5% -8% E 0.12 -10% 20% F 0.30 8% 5% i. Calculate expected return on each stock? On the basis of this measure, which stockyou will choose?ii. Calculate standard deviation of the returns on each stock? On the basis of thismeasure, which stock you will choose?iii. Calculate coefficient of variance of the returns on each stock? On the basis of thismeasure, which stock you will choose?arrow_forwardHow do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.arrow_forward
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