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Calculate the stocks alpha to determine which stocks to buy

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Calculate the stocks alpha so that I can determine which stocks to buy in the problem ( my book is no help)

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 dies change the expected return of the following stocks:

Expected Return Volatility Beta Alpha To Buy
Green Leaf 12% 20% 1.5
NatSam 10% 40% 1.8
HanBel 9% 30% 0.75
Rebecca Automobile 6% 35% 1.2

A. What current market prices, which stocks represent buying opportunities?

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

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Solution Summary

The expert calculates the stocks alpha to determine which stocks to buy are determined.

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Rate of return required by CAPM: re=rf+β*(rm-rf)
Alpha= expected return of the stock- rate of return required by ...

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