The stock of Argo, Inc., is expected to return 14% annually with a standard devi

Question

The stock of Argo, Inc., is expected to return 14% annually with a standard deviation of 8%. The stock of Benford, Inc., is expected to return 17% annually with a standard deviation of 12%. The beta of the Argo stock is 0.60, and the beta of the Benford stock is 1.2. The risk-free rate of return is expected to be 9%, but the return on the market portfolio is 16%. Based on the Security Market Line (SML), what is the required rate of return for Argo given the current market situation?

       17.10%

        15.30%

        13.20%

Continued from the Question, based on the security market line (SML), what is the required rate of return for Benford given the current market situation?

       18.40%

        17.40%

        15.10%

        11.60%

   Continued from Question, which one is a better buy in the current market? (HINT: You shall compare the expected returns of Argo and Benford given in the problem with their corresponding required rates of return you calculated in the Question respectively.

       Benford is a better buy since the required rate of return is greater than the expected return.

        Argo is a better buy since the required rate of return is less than the expected return.

        Argo is a better buy since the required rate of return is greater than the expected return.

        Benford is a better buy since the required rate of return is less than the expected return.

16.40%

Explanation / Answer

  13.20%

15.10%

Argo is a

better buy since the required rate of return is greater than the expected return.

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