Question
Stock XYZ has an expected rate of return of 8% and risk of B= 0.40. Stock ABC has an expected return of 15% and B=1.30.
Stock XYZ has an expected rate of return of 8% and risk of B= 0.40. Stock ABC has an expected return of 15% and B=1.30. The markets return is 12% and the risk free rate is 4%
A) According to CAPM, Which stock is a better buy?
B) What is the alpha on each stock? Plot the SML and each and each stocks risk-return point on one graph. Label everything appropriately and show the alphas graphically
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Modern Equity Investing Strategies
Authors: Anatoly B Schmidt
1st Edition
9811239495, 978-9811239496
