A firm’s stock has a beta  of  25; the expected return on the market is 12%; and the risk-free    rate is 4%. What is the expected rate of return on this stock? (Use CAPM)

  ASSIGNMENT # 4
Due on November 15, 2022; 25 Points

1. Based on the following historical returns (sample) data; calculate the average return and
   the standard deviation of returns for Stock X.

    YEAR                                                              Stock X Rate of Return

201a                                                                       -5%

201b                                                                       10%

201c                                                                    20%
201d                                                                       30%

201e                                                                       25%

2. Based on the following data; calculate the expected return and the standard deviation of

returns for  Stock A.

State of the Economy         Probability      Stock A Rate of Return 

Recession                           0.2                         -20%

Normal Growth                       0.65                        20%

Boom                              0.15                        40%

3. Based on the following data;

State of the Economy               Probability      Stock A Rate of Return   Stock B Rate of Return

Recession                          0.2                                4%                                  -20%

Normal Growth                      0.65                               8%                                   20%

Boom                             0.15                             16%                                   60%

Calculate the expected return and the standard deviation on the portfolio, where

the portfolio is formed by  investing  50% of the funds in Stock A and the rest in Stock B.

4. A firm’s stock has a beta  of  25; the expected return on the market is 12%; and the risk-free
   rate is 4%. What is the expected rate of return on this stock? (Use CAPM)

5. A firm’s stock has a beta  of  8; the expected return on the market is 14%; and the risk-free
   rate is 4%. What is the expected rate of return on this stock? (Use CAPM)

6. Stock A has a beta of 1.4 and stock B has a beta of 0.8; if a portfolio is formed using the two stocks
   where 50% of the funds are invested Stock A and 50% in Stock B; calculate the beta of the poertfolio