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As a potential investor you acquire the following information about three stocks. You expect the...

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Finance

As a potential investor you acquire the following information about three stocks. You expect the risk-free rate to be 5% and the market return to be 9%. Stock

Beta ()

Current Price

Expected Price

Expected Dividend

X

1.5

K22

K23

K0.75

Y

0.5

K40

K43

K1.50

Z

2.0

K45

K49

K1.00

A. Calculate the expected returns of the three stocks.

B. Calculate the estimated rate of return for the three stocks.

C. Draw the Security Market Line (SML) and plot both your answers for parts A and B as well as the market return.

D. What is your investment strategy concerning the three stocks?

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