Question
You have observed the following returns over time: Year Stock X Stock Y Market 2012 14% 13% 12% 2013 19 7 10 2014 -16 -5
You have observed the following returns over time:
| Year | Stock X | Stock Y | Market |
| 2012 | 14% | 13% | 12% |
| 2013 | 19 | 7 | 10 |
| 2014 | -16 | -5 | -12 |
| 2015 | 3 | 1 | 1 |
| 2016 | 20 | 11 | 15 |
Assume that the risk-free rate is 6% and the market risk premium is 5%.
a. What are the betas of Stocks X and Y?
b. What are the required rates of return on Stocks X and Y?
Step by Step Solution
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Step: 1
A Calculate the beta of stock X and stock Y as follows A B 1 Year Stock X Sto...
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Financial Management Theory And Practice
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
3rd Canadian Edition
017658305X, 978-0176583057
