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Question 1 CAPM Calculations (13 marks) The variance of Bobsled Inc. is 2.5 and the variance of Luge Inc. is 1.6, in a m
Posted: Sat Feb 26, 2022 9:05 am
by answerhappygod
- Question 1 Capm Calculations 13 Marks The Variance Of Bobsled Inc Is 2 5 And The Variance Of Luge Inc Is 1 6 In A M 1 (29.15 KiB) Viewed 28 times
Question 1 CAPM Calculations (13 marks) The variance of Bobsled Inc. is 2.5 and the variance of Luge Inc. is 1.6, in a market with a variance of 0.82 and an expected return of 6%. The covariance of Bobsled with the market is 0.984. The covariance of Bobsled with Luge is 0.4 and the correlation coefficient between Bobsled and Luge is 0.2. The risk- free rate (RF) is 4%. Bobsled Inc's stock price closes a $65 on December 2, 2021 and at $68 on December 3, 2021. Use CAPM [E(Ri)=Rf+B E(Rm-Rf)]. What is the equilibrium price of Bobsled stock? (4 points) Would you invest in Bobsled's stock? Why or why not? (2 points)