Question
Please answer questions 7-9 please and thank you :) QUESTION 7 The expected return on a stock with a beta of 0.8 is 11%. If
Please answer questions 7-9 please and thank you :)
QUESTION 7 The expected return on a stock with a beta of 0.8 is 11%. If the risk-free rate is 4.5%, what is the market risk premium?
A. 11% B. 7.5% C. 9.28% D. 8.13%
QUESTION 8 A stock has a beta of 1.1 and an expected return of 12%. The risk-free asset currently earns 4%. If a portfolio of the two assets has a beta of 1.65 what is the weight of the stock in the portfolio and expected return of the portfolio?
A. 125%, 14% B. 0%, 4% C. 150%, 16% D. 100%, 12%
QUESTION 9 The expected return for ABC inc. and XYZ inc. according to equity analysts is 13.75% and 10.5%. If the betas for the two stocks is 1.2 and 0.9 respectively, and the return on the market is 11.5 %. Are the stocks over, under, or fairly valued?
A. ABC: fair valued, XYZ: fair valued
B. ABC: Overvalued, XYZ: Overvalued
C. ABC: Undervalued, XYZ: undervalued
D. ABC: Undervalued, XYZ: Overvalued
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