Solution-Draw the sml line and plot stock return positions

Draw the sml line and plot stock return positions

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Reference no: EM133058128

Assume that an analysist at a major brokerage firm have been following the three stocks in the preceding

Stock	Current price	Expect price	Expected dividend	Beta
A	25	30	1.0	0.70
B	40	45	0.50	1.0
C	33	34	1.0	1.15

The average market rate for next 1 year is estimated to be 10-% a year while expected rate of return for frisk-free asset (T-bill) is about 3%.

a) Find the estimated return for asset A, B and C using the information provided in the Table above.

b) Using the CAPM model, find the required rate return for each stock.

c) Draw the SML line and plot stock return positions.

d) Identify whether securities are under- over or fairly priced.

Reference no: EM133058128

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Draw the sml line and plot stock return positions

Reference no: EM133058128

Reference no: EM133058128

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