Given the Following Information on 3 Stocks

question 43

Essay

Given the following information on 3 stocks:
Using the CAPM, calculate the expected return for Stock's A, B, and
C. Which stocks would you recommend purchasing?
BA = .0070/.0064 = 1.094; ra = .07 + (.18-.07)1.094 = .1903
BB = .0045/.0064 = 0.703; rb = .07 + (.18-.07)0.703 = .1473
BC = .0013/.0064 = 0.203; rc = .07 + (.18-.07)0.203 = .0923
Indifferent on A as .1903 _.19.
Would buy B as.15 > .1473.
Would not buy C as.09 < .0923.

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Definitions:

Decision Making

Refers to the process involved in choosing among different options or actions, often involving considerations of risk and reward.

Speed

The rate at which something moves or operates, or the capacity of something to move quickly.

Quality

The standard of something as measured against other things of a similar kind; the degree of excellence of something.

Automatic Evaluation

An immediate, unconscious assessment of something as good or bad, often based on ingrained beliefs or feelings.