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You analyze Stock A and forecast a 14% rate of return and compute a beta of 1. You analyze Stock B and forecast an 8%
You analyze Stock A and forecast a 14% rate of return and compute a beta of 1. You analyze Stock B and forecast an 8% rate of return and compute a beta of 1.50. The markets expected return is 9.50% and the risk-free rate is 4.75%. According to the capital asset pricing model (CAPM), which stock is a better buy? Compute their expected alpha. Hint: Compare your forecast to the expected CAPM results
You analyze Stock A and forecast a 14% rate of return and compute a beta of 1. You
analyze Stock B and forecast an 8% rate of return and compute a beta of 1.50. The markets expected
return is 9.50% and the risk-free rate is 4.75%. According to the capital asset pricing model (CAPM),
which stock is a better buy? Compute their expected alpha. Hint: Compare your forecast to the expected
CAPM results
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Managerial Accounting
Authors: Ray Garrison, Eric Noreen, Peter Brewer
16th edition
1259307417, 978-1260153132, 1260153134, 978-1259307416
