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Suppose the market portfolio is equally likely to increase by 40% or decrease by 2%. Also suppose that the risk-free interest rate is 6% a.
Suppose the market portfolio is equally likely to increase by 40% or decrease by 2%. Also suppose that the risk-free interest rate is 6% a. Use the beta of a firm that goes up on average by 60% when the market goes up and goes down by 5% when the market goes down to estimate the expected return of its stock. How does this compare with the stock's actual expected return? b. Use the beta of a firm that goes up on average by 25% when the market goes down and goes down by 22% when the market goes up to estimate the expected return of its stock. How does this compare with the stock's actual expected return
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