Given an Expected Return for the Market of 12 Percent

question 53

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

---

Definitions:

Qualified Woman

A woman who possesses the necessary qualifications, such as education, skills, and experience, for a particular job or task.

Ingroup Bias

The tendency to favor members of one's own group over those from different groups, often leading to prejudice and discrimination.

Prejudice

A preconceived opinion or bias against individuals or groups without sufficient knowledge, often based on stereotypes.

Shortage of Women

The term "Shortage of Women" refers to demographic situations where the number of women relative to men in a population is significantly lower than the global average, often due to cultural, social, or economic factors.