Assume That You Are a U Calculate the Expected Return for Each of the Stocks

question 5

Essay

Assume that you are a U.S. investor who is considering investments in the German (Stocks A and
B) and British (Stocks C and
D) stock markets. The world market risk premium is 4.5%. The currency risk premium on the euro is 1%, and the currency risk premium on the pound is -1%. In the United States, the interest rate on one-year risk-free bonds is 4%. In addition, you are provided with the following information:
$$\begin{array} { c c c c c } \text { Stack } & \mathbf { A } & \mathbf { B } & \mathbf { C } & \mathbf { D } \\\hline & & & \text { United } & \text { United } \\ \text { Country } & \text { Germany } & \text { Germany } & \text { Kingdam } & \text { Kingdam } \\\beta _ { w }& 1.5 & 0.90 & 1 & 1.5 \\\gamma _ { € } &1 & 0.80 & - 0.25 & 1.0 \\\gamma _ { €} &-0.25&0.75&1.0&-0.5 \\\hline\end{array}$$ Calculate the expected return for each of the stocks. The U.S. dollar is the base currency.

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Definitions:

Psychological Empowerment

The process of gaining confidence, strength, and autonomy to take control over one's life, leading to a sense of self-efficacy and intrinsic motivation.

High Impact

Refers to actions, activities, or initiatives that have a significant and profound effect on their targets or audiences.

Low Competence

A situation where an individual or organization lacks the necessary skills, knowledge, or ability to perform tasks or duties effectively and efficiently.

Autonomy

The capacity and freedom to make one's own choices and decisions independently, often associated with self-governance.