Question
You are using a SML approach to stock selection. You want to set up a long and short position. The equity market risk premium is
You are using a SML approach to stock selection. You want to set up a long and short position. The equity market risk premium is 6% and the risk free rate is 2%. Based on the data below, which stock would give you a long position and which stock would give you a short position?
|
| Analyst Expected Return | Beta |
| Stock A | 8.6% | 1.1 |
| Stock B | 9.5% | 1.2 |
| Stock C | 8.0% | 1.0 |
| Stock D | 7.2% | 0.9 |
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Finance for Executives Managing for Value Creation
Authors: Gabriel Hawawini, Claude Viallet
4th edition
9781133169949, 538751347, 978-0538751346
