Question
Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled
Your broker has developed a list of firms, their betas, and the return he expects the stock to yield over the next twelve months (labeled "Expected Return"). You have estimated that the risk-free rate is 5% and the return to the market will be 12%. Assuming that CAPM is correct, which stock should you purchase?
| Firm | Beta | Expected Return |
| Anderson, Inc. | 0.90 | 10.5% |
| Delta Vanlines | 1.24 | 13.0% |
| Nathan's Bakeries | 1.50 | 16.0% |
| Z-man Electronics | 2.15 | 19.0% |
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Fundamentals Of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
16th Edition
9780357517574
