Answered step by step
Verified Expert Solution
Question
1 Approved Answer
I only need the answer for question 10 Question 9: Suppose the economy can be in one of the following three states: (1) Boom or
I only need the answer for question 10
Question 9: Suppose the economy can be in one of the following three states: (1) Boom or good state and (ii) Normal State and (iii) Recession or "bad" state. The probability of states occurring is 20%, 55%, and 25% respectively. The annual return on the market and a certain security X in the three states of the economy are as follows. Furthermore, assume that annual risk-free rate of return is 6% in all states of the market. Calculate the beta of security X relative to the market. State of Economy Probability of state Market return StockX return 0.24 Boom 0.20 0.36 Normal 0.55 0.17 Bust 0.25 0.00 -0.28 A. 1.7 B. 2.3 C. 2.6 D. 2.9 Question 10: In the above question (Question 9), assuming CAPM is the correct model to price securities in the market, which of the following statements is true: A. The security is over-priced. B. The security is under-priced. C. The security is fairly priced. D. Insufficient InformationStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started