Question
You are analyzing potential investments for a client. Stock A has an expected return of 11.0% and its covariance with the market portfolio is 0.0072.
You are analyzing potential investments for a client. Stock A has an expected return of 11.0% and its covariance with the market portfolio is 0.0072. Stock B has a return variance of 0.1265 and a correlation with the market portfolio of 0.35. Stock C has a beta of 0.6 and expected return of 6.4%. Long term investment-grade corporate bonds currently yield 4.7%, 10 year government bonds yield 2.5%, and inflation stands at 3.4%. What is the expected return of stock B?
A.) The expected return is 13.40%
b.) The expected return is 16.73%
c.) The expected return is 17.86%
d.) The expected return is 18.92%
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