Question
1. You are a financial analyst at Bank of BU. Your supervisor asks you to study two stocks, Cosi and Pepca. After research, you have
1. You are a financial analyst at Bank of BU. Your supervisor asks you to study two stocks, Cosi and Pepca. After research, you have the following information: In scenario 1, Cosis return is 8.5%, and Pepcas return is 4%. Market return is 6%. In scenario 2, Cosis return is 26.5%, and Pepcas return is 28%. Market return is 18%. The risk free rate is 5%. There are only two possible scenarios. Your supervisor asks you to obtain the following information (show the steps of your calculation for full credits): a. What are the betas of Cosi and Pepca? (4 pt) b. What is the expected rate of return on each stock, if the two scenarios are equally likely to happen? (6 pt) c. Bank of BU is going to invest in a project that contains similar risk characteristics to Pepca. What required rate of return should be used to evaluate this project? Why? (3 pt) d. What are the alp
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