Question
Stock E(R) Standard Deviation Correlation between the stock and the market portfolio A 13% 12% 0.9 B 11% 16% 0.5 C 16% 23% 0.3 Standard
| Stock | E(R) | Standard Deviation | Correlation between the stock and the market portfolio |
| A | 13% | 12% | 0.9 |
| B | 11% | 16% | 0.5 |
| C | 16% | 23% | 0.3 |
| Standard Deviation for the market portfolio: 8% | |||
| Risk free rate of return: 3% | |||
| Market rate of return: 11% | |||
a. Calculate the alpha of three stocks above and determine if each stock is underpriced or overpriced.
b. If you currently hold a market index portfolio, which stock is the best stock to add to your portfolio?
c. If you could invest only in T-bills and one of these portfolios, which would you choose?
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Scientific Forecasting
Authors: Karl Karsten
1st Edition
1614278148, 978-1614278146
