Easy Finace question Will give points ASAP 1) A stock has a beta of 1.38, the ex

Question

Easy Finace question Will give points ASAP

1)

A stock has a beta of 1.38, the expected return on the market is 10 percent, and the risk-free rate is 5 percent. What must the expected return on this stock be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

2)

Stock Y has a beta of 1.5 and an expected return of 15.7 percent. Stock Z has a beta of .6 and an expected return of 8.2 percent. If the risk-free rate is 5.3 percent and the market risk premium is 6.3 percent, the reward-to-risk ratios for stocks Y and Z are  and  percent, respectively. Since the SML reward-to-risk is  percent,

A stock has a beta of 1.38, the expected return on the market is 10 percent, and the risk-free rate is 5 percent. What must the expected return on this stock be? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Expected return = 5% + 1.38 * (10% - 5%)

= 11.9%

2) Reward to risk for stock Y = (15.7% - 5.3%) / 1.5 = 6.93%

Reward to risk for stock Z = (8.2% - 5.3%) / 0.6 = 4.83%

SML reward to risk = 6.3%

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