value 10.00 points Stock Y has a beta of 1.2 and an expected return of 13.7 perc

Question

value 10.00 points Stock Y has a beta of 1.2 and an expected return of 13.7 percent Stock Z has a beta of 0 8 and an expected return of 9 5 percent. If the risk-free rate is 5.3 percent and the market risk gremium in 3 percent, the reward-to-risk ratios for stocks Y and Z are respectively Since the SML reward-to-risk is Stock Z is (Click to select) ( the reward-to-risk ratios for stocks Y and Z are and and percent, Stock Y is (Click to seled V and Round your answers to 2 decimal places. (e.g. 32.16 References eBook & Resources Worksheet Difficulty Basic

Explanation / Answer

Risk/reward = (Expected Ret - Rf) / Beta. Stock Y Expected Return 13.70% Risk free rate 5.30% Beta 1.2 Reward Risk Rato Stock Y = (0.137-0.053)/1.2 = 7.00% Stock Z Expected Return 9.50% Risk free rate 5.30% Beta 0.8 Reward Risk Rato Stock Y = (0.095-0.053)/0.08 = 5.25% Since SML reward risk is risk premium=6.3% Stock Y is undervalued Stock Z is overvalued

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.