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U.S. Treasury bills are currently yielding 4 percent while the average historical annual return is 3.5 percent. Historically, average annual returns have been 12.5
U.S. Treasury bills are currently yielding 4 percent while the average historical annual return is 3.5 percent. Historically, average annual returns have been 12.5 percent on portfolios of stocks. Company A is a small cap stock that has a beta of 1.3 and a standard deviation of returns is 25 percent. Company B is a large cap stock that has a beta of 0.7 and a standard deviation of returns is 35 percent. Company C is a small cap stock that has a beta of 1.0 and a standard deviation of returns is 20 percent. The common stock of Companies A, B, and C are currently selling for $50, $40, and $30 per share, respectively. What is the expected return of each stock (A, B, and C)? Expected Return A: Expected Return B: Expected Return C: Suppose you form a portfolio consisting of 100 shares of Company A stock, 200 shares of Company B stock, 50 shares of Company C stock, and $1,000 invested in Treasury bills. What is the total value of this portfolio? What is the expected return on the portfolio described in above? (Note: Round your final answer to four decimal places.)
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To calculate the expected return of each stock we can use the capital asset pricing model CAPM which ...Get Instant Access to Expert-Tailored Solutions
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