QUESTION 1 [8 marks] a) How do financial managers create value for the firm? Explain and provide examples where necessary. (3 marks) 2 2 2 2 2 2 2 1 2 2 QUESTION 1 continued: b) Assume that the CAPM is the correct asset pricing model. The market expected return is 6% with 15% volatility and the risk-free rate is 4%. News arrives and it changes only the expected return of the following stocks: Estimate the normal return and abnormal return for each stock. Specify which stock presents buying opportunities and which presents selling opportunities? No. Stock Expected Return after News Arrives Volatility Betae Trump 9% 29% 2.12 2 Putin 5% 42% 1.60 (5 marks) Estimate the normal return and abnormal return for each stock. Specify which stock presents buying opportunities and which presents selling opportunities