Explore BrainMass

# Important Information About Expected Returns and Betas for Investment Selection

Not what you're looking for? Search our solutions OR ask your own Custom question.

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

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

#### Solution Preview

Expected Return Beta
a 9.01% 1.70
b 7.06% -
c 5.04% -0.67
d 8.74% 0.85
e 11.50% 2.50

We should find the required rate of return on each stock and compare with the expected return.

Stock a
Required return on Stock = ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer which security would be the best investment, including an excel spreadsheet with more detailed calculations attached.

\$2.49