You have been provided the following data on the securities of three ?rms, the market portfolio, - 12419

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Correlation and Beta: You have been provided the following data on the securities of three ?rms, the market portfolio, and the risk-free asset:

 

Security Expected Return Standard Deviation Correlation Beta
Firm A 0.11 0.33 (i) 0.70
Firm B 0.14 (ii) 0.36 1.35
Firm C 0.10 0.37 0.40 (iii)
The market portfolio (S&P500) 0.12 0.22 (iv) (v)
The risk-free asset (U.S. T-Bill) 0.05 (vi) (vii) (viii)

 

a. Fill in the missing values in the table. 

 

 

 

b. Is the stock of Firm A correctly priced according to the capital asset pricing model (CAPM)?

 

What about the stock of Firm B? Firm C? If these securities are not correctly priced, what is your investment recommendation for someone with a well-diversi?ed portfolio?

 

 

 

 

 

 

 

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Finance Questio...