A) Since Stock A has an expected return of 11.41%, it must be underpriced.
B) Since Stock A has an expected return of 11.41%, it must be overpriced.
C) Since Stock A has an expected return of 9.64%, it must be overpriced.
D) Since Stock A has an expected return of 9.64%, it must be underpriced.
The correct answer is: C)
Step 1: Calculate the expected return on Stock A
E(R) = (.10)(12%) + (.25)(15%) + (.40)(8%) + (.25)(-9%)
= 1.2% + 3.7% + 3.2% + -2.2%
Step 2: Relative comparison:
Stock A is overpriced (this result is from the lower expected return).
The correct answer is: b) Step 1. Find Portfolio Beta Beta of the Portfolio = (.25)(.5)+(.25)(2)+(.25)(1)+(.25)(0) = 0.125 ...
Learn about the expected return and standard deviation and the difference between the expected return and standard deviation ...
The correct answer is a): The risk-adjusted return attempts to measure the risks taken to achieve a desired return. Alpha ...
The correct answer is b. Standard deviation and the risk-free rate of return are used to calculate or measure return based ...
Dig deeper into the investment uses of, and mathematical principles behind, standard deviation as a measurement of portfolio ...
Learn how beta is used to measure risk versus the stock market, and understand how it is calculated and used in the capital ...
A concept that refines an investment's return by measuring how ...
The pricing of an initial public offering (IPO) below its market ...
The average amount of money earned by an investment each year ...
1. A measure of the dispersion of a set of data from its mean. ...
The chance that an investment's actual return will be different ...
Beta is a measure of the volatility, or systematic risk, of a ...