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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