solution
solution.
Year HPR of Stock A HPR of Stock B HPR of Stock C
2019 10% 20% 10%
2020 15% 15% 15%
2021 20% 10% 20%
2. Currently, the risk-free interest rate (RF) is 0.5% and the required market return (rm) is 12.5%. You consider to buy a stock with a beta () of 1.2 and you expect to earn 18% annual rate of return from this stock. a
(1) Use the Capital Asset Pricing Model (CAPM) to find the required return on this stock
(2) Base on your answer from part (1), would you buy this stock? Why or why not?
(3) Draw the Security Market Line (SML) using the data above, and determine intercept and slope of the SML.
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