1. Given the following information for the two stocks: Stock Expected Return Standard Deviation Investment Beta A 16% 3% $30,000 1.2 B 15% 10% $20,000
1. Given the following information for the two stocks:
Stock Expected Return Standard Deviation Investment Beta
A 16% 3% $30,000 1.2
B 15% 10% $20,000 0.8
You construct a portfolio composing of stocks A and B according to the above information. Assume that the risk free rate is 6% and the market risk premium (MRP) is 9%. Use the CAPM analysis to numerically determine whether this 2- stock portfolio is fairly priced? What is your investment recommendation on this portfolio? Why?
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Authors: Andrea Binder
1st Edition
0192870122, 978-0192870124
