MGT201 GDB
Solution
Discussion Question:
Selection of an efficient stock from the stock market is a crucial decision that is not only vital for investment but also paves the ways for value
addition. Stocks are selected on a returns and volatility basis that
carries a tradeoff. In this context, the calculation of required return (RR)
with the help of Security Market Line (SML) and stock beta may help a lot to
any investor. Assume you are going to invest in a stock exchange where you are a
new investor and you are facing an issue of the selection of stock among
different alternative available in the market. Following information regarding
stocks and market are available to you:
Particulars
|
Stock A (%)
|
Stock B (%)
|
Market (%)
|
Standard Deviation
|
27
|
28
|
18
|
Correlation of stocks
with market
|
0.8
|
0.5
|
|
Market Return
|
15
|
||
Risk-Free Return
|
8
|
||
1.
You are required to calculate the required rate of return of Stock
A and Stock B