Consider the following table, which gives a security analyst’s expected return on two stocks in two particular scenarios
Posted: Wed Jul 06, 2022 6:28 pm
Consider the following table, which gives a security analyst’sexpected return on two stocks in two particular scenarios for therate of return on the market:
1. What are the betas of the two stocks?
2. What is the expected rate of return on each stock if the twoscenarios for the market return are equally likely to be 6% or23%?
3. What hurdle rate should be used by the management of theaggressive firm for a project with the risk characteristics of thedefensive firm’s stock if the two scenarios for the market returnare equally likely? Also, assume a T-Bill rate of 7%.
1. What are the betas of the two stocks?
2. What is the expected rate of return on each stock if the twoscenarios for the market return are equally likely to be 6% or23%?
3. What hurdle rate should be used by the management of theaggressive firm for a project with the risk characteristics of thedefensive firm’s stock if the two scenarios for the market returnare equally likely? Also, assume a T-Bill rate of 7%.