Connor gathered the following information about four common stocks [useful for the next 4 questions]...
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Accounting
Connor gathered the following information about four common stocks [useful for the next 4 questions]
Stock
Beta
A
0.9
B
1.0
C
1.1
D
1.2
The expected risk-free rate of return is 4% and the market risk premium is 8%. All four stock have the same estimated annual return of 12.4%. For the multiple choice questions, you need to explain your answer. Q1 Which stock has the same (expected) risk premium as the market? A, B, C, D or none of above? Q2 Which stock has a lower and negative correlation with respect to the market? A, B, C, D or none of above? Q3 If an investor invests only $300 in stock C and $200 in stock A, then what's the portfolio beta? 0.85, 0.95, 1.0, 1.05 or none. Q4 What is the number of stocks that are overvalued? 0, 1, 2, 3 or none.
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