Given an Expected Return for the Market of 12 Percent,with $\begin{array}{ccc}\text { Stock } & \text { Beta }&{ R }_\mathrm{i}(\%) \\\hline 1 & 0.8 & 12 \\2 & 1.2 & 13 \\3 & 0.6 & 11\end{array}$

question 17

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:
$\begin{array}{ccc}\text { Stock } & \text { Beta }&{ R }_\mathrm{i}(\%) \\\hline 1 & 0.8 & 12 \\2 & 1.2 & 13 \\3 & 0.6 & 11\end{array}$
(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:

Unemployment Rate

The percentage of the labor force that is jobless and seeking employment, used as an indicator of the economy's health.

Contractionary Monetary Policy

Monetary policy measures undertaken by a central bank to reduce inflation and slow down economic growth by decreasing the money supply or increasing interest rates.

Minimum Wage

The lowest remuneration that employers can legally pay their workers, a rate which is set by government legislation.

Unemployment Rate

The segment of the labor force currently without employment but making efforts to find work.