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explain each step please (b) Consider the table below relating to companies ABC and XYZ. Company ABC Forecasted Return 12% Standard Deviation 8% Beta 1.5
explain each step please (b) Consider the table below relating to companies ABC and XYZ. Company ABC Forecasted Return 12% Standard Deviation 8% Beta 1.5 XYZ 11% 10% 1.0 Assume that the risk free rate of return is 4% and the market risk premium is 6%. According to the Capital Asset Pricing Model, What would the fair return for each company be? For each company, state whether the stock is underpriced, overpriced, or fairly priced. Explain your answer. (8 marks) (c) Two investment advisers are comparing the performance of their portfolios. The portfolio of the first investment adviser had a rate of return of 19% while the portfolio of the second adviser had a rate of return of 16%. The beta of the first investment adviser's portfolio was 1.5 while the beta of the second adviser's portfolio was 1. From this information alone, can you tell which investor was a better selector of individual stocks? Explain your answer. Now suppose the T-bill rate was 6% and the market return during the period was 14%. Calculate the a's of each portfolio to show which investor was a better selector of individual stocks. TeenAiATOn (10 marks) slabom
explain each step please
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