A stock has a beta of 1.2 and the standard deviation of its return is 25%. The

Question:

A stock has a beta of 1.2 and the standard deviation of its return is 25%. The market risk premium is 5% and the risk-free rate is 4%.

A) What is the expected return for the stock?

B) What are the expected return and standard deviation for a portfolio that is equally invested in the stock and the risk-free asset?

C) A financial analyst forecasts a return of 12% for the stock. Would you buy it? Why or why not?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...