Question

6. At present, suppose the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. The expected returns for four stocks are listed together with their expected betas.

Stock Expected Return Beta
NIC 18% 1.3
EIC 14 0.8
UIC 16 1.1
NIBC 17 1.7

Answer 1

ansewr the qeution

Answer 2

answer

Answer 3

Answer

Answer 4

Answer this question

Answer 5

[AI-generated answer — Explain Bot]

To calculate the expected return of a stock using the Capital Asset Pricing Model (CAPM), you need to use the formula:

Expected Return = Risk-free rate + Beta * (Expected return on the market portfolio - Risk-free rate)

In this case, the risk-free rate is given as 10%, and the expected return on the market portfolio is given as 15%. You also have the betas for each stock.

Let's calculate the expected returns for each stock:

1. NIC:
Expected Return = 10% + 1.3 * (15% - 10%)
Expected Return = 10% + 1.3 * 5%
Expected Return = 10% + 6.5%
Expected Return = 16.5%

2. EIC:
Expected Return = 10% + 0.8 * (15% - 10%)
Expected Return = 10% + 0.8 * 5%
Expected Return = 10% + 4%
Expected Return = 14%

3. UIC:
Expected Return = 10% + 1.1 * (15% - 10%)
Expected Return = 10% + 1.1 * 5%
Expected Return = 10% + 5.5%
Expected Return = 15.5%

4. NIBC:
Expected Return = 10% + 1.7 * (15% - 10%)
Expected Return = 10% + 1.7 * 5%
Expected Return = 10% + 8.5%
Expected Return = 18.5%

Therefore, the expected returns for the four stocks are as follows:

- NIC: 16.5%
- EIC: 14%
- UIC: 15.5%
- NIBC: 18.5%