Question
Stock ABC has beta of 1.2. The risk-free rate is 5%, and the market expected rate of return is 14%. My estimation shows that the
Stock ABC has beta of 1.2. The risk-free rate is 5%, and the market expected rate of return is 14%. My estimation shows that the stock of ABC has alpha of 3% over a one-year period horizon. I have $20,000 in my account and I also want to use buy on margin as well to buy ABC as much as possible. Initial margin requirement is 50% and I am supposed to pay back 5% annually compounded interest on it. How would be the rate of return of my investment on ABC in a period of one year?
Please Do not use Excel to solve this, I want the formulas seen and the steps so I can understand the concept.
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