Essay
Given the following information on 3 stocks:
Using the CAPM, calculate the expected return for Stock's A, B, and
C. Which stocks would you recommend purchasing?
BA = .0070/.0064 = 1.094; ra = .07 + (.18-.07)1.094 = .1903
BB = .0045/.0064 = 0.703; rb = .07 + (.18-.07)0.703 = .1473
BC = .0013/.0064 = 0.203; rc = .07 + (.18-.07)0.203 = .0923
Indifferent on A as .1903 _.19.
Would buy B as.15 > .1473.
Would not buy C as.09 < .0923.
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