P338 - Inco 4-Show your work to get credit. Nam - 1. Pond of liwhile Coca Cola's 03. You expect the volatility of Pond to be 2016 od that of Coca Cola to be 30% over the next year. (a) Which company has a higher total risk and which coolers the Wigher expected returned on CAPM Explain (b) Which company is rinkiest for a diversified investor and an undiversified investor? Explain. each 2. ll Lilly has of 0.51, a forward dividend per share of $2.58, and you expect it to grow in perpetuity lwy year. Suppose the expected return on the S&P 500 is 11% and the risk-free rate is 2.5% (a) What should be the stock price of Eli Lilly according to the CAPM? (b) If the market price of Eli Lilly is $124.31, would you buy or sell the stock? Explain. 3. Asume the following for General Motors (GM). Exxon (XOM), and Walmart (WMT) GM XOM WMT Portfolio Forecasted Return 14% 8% 4% 9% 1.20 0.8 0.4 1-year Treasury bill 2% 2% 2% Market Risk Premium 9% 9% 9% Std. Deviation 10% 20% 15% () According to CAPM, what are the expected returns for each stock? 3.stock portfolio, Investing $9,000 in GM, (1) Based on CAPM, what is the Beta and the expected return of $15,000 in XOM, and $6,000 in WMT? (c) Estimate the alphas for WMT, XOM, GM. Which companies have a negative as and which one has positive os ? (d) Plot the SML graph for the individual companies above and mark the forecasted returns (all in one graph) Which stocks would you buy and which ones would you short sell? and why