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a) Explain why an investor when valuing a stock would use a higher discount rate, the higher the stocks beta is. b) Stock A and
a) Explain why an investor when valuing a stock would use a higher discount rate, the higher the stocks beta is.
b) Stock A and B have expected returns of 10% and 20%, respectively. The tangency portfolio contains 50% each of A and B. What are the weights of A and B in an efficient portfolio with expected return of 18% when riskfree borrowing and lending are allowed at a riskfree rate of 3%? Explain your solution steps.
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