contestada

Which one of the following stocks, if any, is correctly priced according to CAPM if the risk-free rate of return is 6.5 percent and the market rate of return is 10.5 percent? Stock A with a beta of .85 and an expected return of 9.22 percent; Stock B with a beta of 1.08 and an expected return of 11.90 percent; Stock C with a beta of 1.69 and an expected return of 15.38 percent; Stock D with a beta of 1.45 and an expected return of 12.30 percent.

Respuesta :

TomShelby

Answer:

Stock D

12.30% this stock is correctly priced according to CAPM

Explanation:

We will calculate the Capital Assets Pricing Model (CAPM) for each stock

All have the same risk-free rate and market-rate. We change the beta for each Stock:

CAPM:

[tex]Ke= r_f + \beta (r_m-r_f)[/tex]

risk free 0.065

market rate 0.105

premium market = (market rate - risk free) = 0.04

Stock A

beta(non diversifiable risk) 0.85  

[tex]Ke= 0.065 + 0.85 (0.04)[/tex]  

Ke 0.09900 9.22% this stock is no correctly priced.

Stock B

beta(non diversifiable risk) 1.08

[tex]Ke= 0.065 + 1.08 (0.04)[/tex]

Ke 0.10820 10.82% this stock is no correctly priced.

Stock C

beta(non diversifiable risk) 1.69

[tex]Ke= 0.065 + 1.69 (0.04)[/tex]

Ke 0.13260   13.26% this stock is no correctly priced.

Stock D

beta(non diversifiable risk) 1.45

[tex]Ke= 0.065 + 1.45 (0.04)[/tex]

Ke 0.12300 12.30% this stock is correctly priced according to CAPM