Explore BrainMass

Explore BrainMass

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

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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?

    © BrainMass Inc. brainmass.com June 4, 2020, 12:22 am ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/determine-stocks-should-bought-sold-335003

    Solution Preview

    ANSWERS
    See the attached file.

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

    Security Expected ...

    Solution Summary

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

    $2.19

    ADVERTISEMENT