As a potential investor you acquire the following information about three stocks. You expect the...
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Finance
As a potential investor you acquire the following information about three stocks. You expect the risk-free rate to be 5% and the market return to be 9%. Stock
|
| Beta () | Current Price | Expected Price | Expected Dividend |
| X | 1.5 | K22 | K23 | K0.75 |
| Y | 0.5 | K40 | K43 | K1.50 |
| Z | 2.0 | K45 | K49 | K1.00 |
A. Calculate the expected returns of the three stocks.
B. Calculate the estimated rate of return for the three stocks.
C. Draw the Security Market Line (SML) and plot both your answers for parts A and B as well as the market return.
D. What is your investment strategy concerning the three stocks?
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