Given an Expected Return for the Market of 12 Percent

question 5

Essay

Given an expected return for the market of 12 percent, with a standard deviation of 20 percent, and a risk-free rate of 8 percent, consider the following data:
$\begin{array}{lll}\underline {Stock}&\underline { Beta }&\underline { \mathrm{R}_{\mathrm{i}}(\%) }\\1 & 0.8 & 12 \\2 & 1.2 & 13 \\3 & 0.6 & 11\end{array}$ (a) Calculate the required return for each stock using the SML.
(b) Assume that an analyst, using fundamental analysis, develops the estimates labeled R_i for these stocks. Which stock would be recommended for purchase?

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Definitions:

Technical Ability

The skill set or proficiency in specific tasks or operations, often related to technology, that is necessary for effective job performance.

Work Environment

The setting, conditions, and culture in which an individual works, including physical space, social interactions, and organizational policies.

Skills Approach

is a perspective on leadership that emphasizes the importance of developing specific skills and competencies to be effective in leadership roles.

Large Number of Components

Refers to systems, machines, or structures that are made up of many different parts, often making them complex to construct, understand, or manage.