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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

ABC Company's, stock earned a return of 10% this past year. Investors’ required return for this stock based on the SML equation was 9%. Where would this stock plot on the SML? What can you say about this investment's alpha? Explain.

Summary Introduction

To discuss: The place where the stocks plot on SML.

Introduction:

Securities market line (SML) is a line refers to the graphical representation of CAPM (capital asset pricing model) which shows the various levels of market or systematic risk of different market securities against the expected market return.

Explanation

Given information:

Past year stock of Company A earned a return of 10%. The required return of this stock is based on the SML equation that was 9%.

The place where the stocks plot on SML:

Summary Introduction

To discuss: Investment alpha

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