Question
Consider the following information for three stocks, Stock A, Stock B, and Stock C. The returns on each of the three stocks are positively correlated,
Consider the following information for three stocks, Stock A, Stock B, and Stock C. The returns on each of the three stocks are positively correlated, but they are not perfectly correlated. (That is, all of the correlation coefficients are between 0 and 1.)
| Expected | Standard | |||
| Stock | Return | Deviation | Beta | |
| Stock A | 10% | 20% | 1.0 | |
| Stock B | 10 | 20 | 1.0 | |
| Stock C | 12 | 20 | 1.4 | |
Portfolio P has half of its funds invested in Stock A and half invested in Stock B. Portfolio Q has one third of its funds invested in each of the three stocks. The risk-free rate is 5%, and the market is in equilibrium. What is the market risk premium RPM?
| 4.0% | ||
| 4.5% | ||
| 5.0% | ||
| 5.5% | ||
| 6.0% |
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Financial Accounting Preparing Financial Statements Study Text
Authors: Kaplan
1st Edition
9781839965685
