Purchase Solution

Expected Return and Volatility

Not what you're looking for?

Ask Custom Question

1. Assume that the CAPM is a good description f 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?

2. Why does the CAPM imply that investors should trade very rarely?

Purchase this Solution
Solution Summary

Expected return and volatility are examined.

Purchase this Solution
Free BrainMass Quizzes
Measures of Central Tendency

This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.

Measures of Central Tendency

Tests knowledge of the three main measures of central tendency, including some simple calculation questions.

Know Your Statistical Concepts

Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.

Terms and Definitions for Statistics

This quiz covers basic terms and definitions of statistics.

View More Free Quizzes
Related BrainMass Solutions

  • Capital Asset Pricing Model- expected return, volatility

    Suppose the risk free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Under the CAPM assumptions, a.

  • Return & Volatility

    You invest the entire $115,000 in a portfolio J with a 15% expected return and a 25% volatility. a. What is the expected return and volatility (standard deviation) of your investment?

  • Market Portfolio

    Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%.  Under the CAPM assumptions: a.  

  • Expected Return and Volatility Question

    of how to determine expected return and volatility of a portfolio.

  • Computing Beta and Risk Premium

    The S&P 500 has a volatility of return of 15 percent and an expected return of 12 percent. The emerging market has a return volatility of 30 percent and an expected return of 10 percent.

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

    335003 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%.

  • Cost of Capital and Risk Free Rate

    Suppose these investors currently hold the S&P 500 portfolio, which has a volatility of 15% and an expected return of 10%. The investment is expected to have a volatility of 30% and a 15% correlation with the S&P 500.

  • Why Investors Demand Higher Expected Rates of Return on Stocks

    A has an expected return of 10% and a volatility of 15%, while B has an expected return of 10% and a volatility of 25%. No investor will buy B, because he would be getting more risk for the same expected return as A.

  • Capital Asset Pricing Model of a Portfolio Share

    Compute the expected return and volatility of return for a portfolio that has a portfolio share of 0.9 in the S&P 500 and 0.1 in an emerging market index. The S&P 500 has a volatility of return of 15 percent and an expected return of 12 percent.

View More Related Solutions