# Expected Return Volatility Beta: Determine which stocks should be bought or sold

2. Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks:

Expected Return Volatility Beta

Green Leaf 12% 20% 1.5

NatSam 10% 40% 1.8

HanBel 9% 30% 0.75

Rebecca Automobile 6% 35% 1.2

a. At current market prices, which stocks represent buying opportunities?

b. On which stocks should you put a sell order in?

https://brainmass.com/business/capital-asset-pricing-model/determine-stocks-should-bought-sold-335003

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ANSWERS

See the attached file.

First, determine the rate of return for each of the investments using the capital asset pricing model.

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#### Solution Summary

The solution calculates the stocks represent buying opportunities and which stocks should be sold.