Compute expected return and the standard deviation

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Reference no: EM132072375

Grubb, an analyst at the Oracle Consulting has forecasted next years returns for IBM stock and the overall market under the following three plansible scenarios.

State of the world Probability Return On IBM Return on Market Portfolio

Long drawn war 0.1 -20% -6%

Short War 0.7 10% 12%

No war 0.2 30% 16%

a) Compute expected return, and the standard deviation the IBM stock and the market portfolio.

b) If the esstimated beta for the IBM is 1.2 and the risk-free rate is 4%, what is the required rate of return using CAPM model?

c) In view of your answers to a and b above what is the indicated investment strategry. Give arguments supported by your analysis.

Reference no: EM132072375

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