You are given the following information about four portfolios and the market returns.ABсD12%10%15%20%1.20.81220%16%30%45%Average ReturnBetaSTD.Which stock constitutes the best buying opportunity if CAPM is your benchmark?ABOCDNone of them offer buying opportunities.Market8%115%

The formula to determine the expected return using CAPM formula is as below: Expected Return =…

Answered: Which stock constitutes the best buying…

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Finance

Which stock constitutes the best buying opportunity if CAPM is your benchmark?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

You are given the following information about four portfolios and the market returns.
A
B
с
D
12%
10%
15%
20%
1.2
0.8
1
2
20%
16%
30%
45%
Average Return
Beta
STD.
Which stock constitutes the best buying opportunity if CAPM is your benchmark?
A
B
OC
D
None of them offer buying opportunities.
Market
8%
1
15%

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