Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help with just parts A and B on this practice problem! Would greatly appreciate your help and per chegg's policy since it is a

Please help with just parts A and B on this practice problem! Would greatly appreciate your help and per chegg's policy since it is a multi-part question it is allowed! Thank you in advance and will be sure to leave a review!

image text in transcribed

Consider an economy with the following information. Stock Price Today (PC) Expected Dividend (D) Expected ex-dividend price next year (P) 1.50 53.50 1.00 36.00 A B 48.50 31.15 Note: The ex-dividend price is the price of the stock immediately after the dividend is paid. The risk-free rate is 8% and the expected return on the market is 14%. The return covariance matrix for the securities is (on the diagonal are the variance (67 ) terms and off the diagonal are the covariance ( 0, ) terms): B Market Market A B A 0.300 0.240 0.250 Market 0.081 0.054 0.090 Assume that the assumptions of the CAPM hold. (a) (5 points) Using the information above write the equation for the capital market line in this economy. (b) (5 points) Using the information above write the equation for the security market line in this economy

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Biblical Finance Reflections On Money Wealth And Possessions

Authors: Mark Lloydbottom, Keith Tondeur

1st Edition

0956395023, 978-0956395023

More Books

Students also viewed these Finance questions

Question

=+What category does this metric represent?

Answered: 1 week ago