Based on the past 3 years’ weekly returns, we find the covariance of a firm’s return with market return is 0.5, the variance of firm’s stock returns is 0.4, and the variance of market returns is 0.2. Based on a 5% expected market return, and a 1% risk-free rate, what should be the expected stock return of the firm?
Based on the past 3 years’ weekly returns, we find the covariance of a firm’s return with market return is 0.5, the variance of firm’s stock returns is 0.4, and the variance of market returns is 0.2. Based on a 5% expected market return, and a 1% risk-free rate, what should be the expected stock return of the firm?
Chapter6: Risk And Return
Section: Chapter Questions
Problem 14P
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10) Based on the past 3 years’ weekly returns, we find the covariance of a firm’s return with market return is 0.5, the variance of firm’s stock returns is 0.4, and the variance of market returns is 0.2. Based on a 5% expected market return, and a 1% risk-free rate, what should be the expected stock return of the firm?
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