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3) The risk free rate is 5% and the average market return is 15%. Based on these information a) Which company has higher Total Risk?
3) The risk free rate is 5% and the average market return is 15%. Based on these information a) Which company has higher Total Risk? Which information do you use to answer this question? b) Calculate the Sharpe Ratio of both companies. Which company's stock should be bought according to the Sharpe Ratio? Why? (Show your calculation) c) Calculate the required rate of return (rrr) for each company by using CAPM formula. Which company's stock should be bought according to the CAPM? Why? (Show your calculation) d) Do your answers to b) and c) contradict? If yes, which one should be trusted more? Why
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