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What should today price be for each stock

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Reference no: EM133054247

Question - Consider three stocks:

 

Beta

Standard Deviation

Dividend

Forecast stock price

Q

0,45

35%

0,5

45

R

1,45

40%

0

75

S

-0,2

40%

1

20

Use a risk-free rate of 2% and an expected market return of 9.5%. The standard deviation of the market returns is 18%. Assume that the next dividend will be paid after one year, at t= 11.

1. According to CAPM, what is the expected rate of return of each stock?

2. What should today's price be for each stock, assuming CAPM is correct?

Reference no: EM133054247

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