Question
a. ALM Property stock has a beta of 1.5 and an expected return of 13%. The risk-free rate is 4%. Assume the CAPM is valid.
a. ALM Property stock has a beta of 1.5 and an expected return of 13%. The risk-free rate is 4%. Assume the CAPM is valid.
i. Determine the market risk premium. (6 marks)
ii. Suppose UCC stock has a beta of 0.6. What is the expected return on the UCC stock? (4 marks)
b. A fund manager of IMD Securities Ltd quoted:
'GC Tech has a very high beta since its stock has traded as high as $253 and as low as its current $64 during this year.'
Do you agree with the fund manager? Explain.
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International Finance Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
10th edition
978-0133425895, 133425894, 978-0133423631, 133423638, 978-0133423648
