Purchase Solution

Expected Returns and Betas for Investment Selection

Not what you're looking for?

Ask Custom Question

You have been scouring The Wall Street Journal looking for stocks that
are "good values" and have calculated the expected returns for five
stocks. Assume the risk-free rate (rRF) is 7 percent and the market risk
premium (rM - rRF) is 2 percent. Which security would be the best
investment? (Assume you must choose just one).
Expected Return Beta
a. 9.01% 1.70
b. 7.06% 0.00
c. 5.04% -0.67
d. 8.74% 0.87
e. 11.50% 2.50

Purchase this Solution
Solution Summary

The solution explains how to select the best investment.

Solution Preview

Given the risk free rate, risk premium and the beta, calculate the required return from the stock using the ...

Purchase this Solution
Free BrainMass Quizzes
Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Understanding the Accounting Equation

These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.

View More Free Quizzes
Related BrainMass Solutions

  • Important Information About Expected Returns and Betas for Investment Selection

    93919 Important Information About Expected Returns and Betas for Investment Selection Please help with the following problem.

  • Portfolio return, Stock return, Leverage

    D Required returns have increased for stocks with betas greater than 1.0 but have declined for stocks with betas less than 1.0. E The required returns on all stocks have fallen by the same amount.

  • Beta

    Because assets with larger betas have greater systematic risks, they will have greater expected returns. The Capital Asset Pricing Model (CAPM) is a theory of risk and return for securities (stocks) on a competitive capital market.

  • Multiple Choice

    226083 Stock returns problem Assume that in recent years, both expected inflation and the market risk premium (rM - rRF) have declined. Assume also that all stocks have positive betas.

  • CAPM and Fama French Model

    377243 Investment Analysis: Fama and French model for Company A and Cisco Systems Using the attached Fama and French Excel File: (a) Try to fit the CAPM equation to Company A's returns.

  • Beta of stocks

    By diversifying your investment according to beta, have you entirely removed the potential risk of lossess due to a declining stock market? The stocks are risky because the returns are uncertain. There is a spread of possible returns.

  • Portfolio risk and return

    What is the relationship between portfolio's betas and its component stocks betas? 4.

  • Why should a stock beta and expected return be related?

    Why should a stock beta and expected return be related while no such relationship exists between a stock's standard deviation and expected returns? Systematic risk drivers the expected returns.

  • Security expected returns and betas in 3 well-diversified portfolios

    284069 Security expected returns and betas in 3 well-diversified portfolios Security expected returns and betas Security E(R) Beta 1 10% 1.00 2 12% 1.20 3 13% 1.10 Suppose there are three well-diversified portfolios, as shown above.

View More Related Solutions