Answered step by step
Verified Expert Solution
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!
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 economyStep 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