Question
Stock FM has a standard deviation of 28 percent and a correlation coefficient of 0.7 with market returns. The standard deviation of market return is
Stock FM has a standard deviation of 28 percent and a correlation coefficient of 0.7 with market returns. The standard deviation of market return is 16 percent, and the expected return is 13.5 percent. The risk-free rate is 4.5 percent.
a.What is the beta of stock FM?
b.What is the required rate of return of stock FM by the CAPM model?
c.Compare FM's required return to the expected market return. What causes the difference?
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
