Consider the information below. Question has 25 points Stock Riskless Return Market Return Beta Implied Return Sigma 2.50% 13.50% 0.8 18% Omega 2.50% 13.50% 1.2 9%
A. Calculate the CAPM required return for both stocks. Sigma: Omega:
B. Calculate the excess return, alpha, for both stock. Sigma: Omega:
C. Which one would you buy? Explain.