Question: You have been scouring The Wall Street Journal looking for stocks that are "good values" & have computed the expected returns for five stocks (a,b,c,d,e). Suppose the risk-free rate (kRF) is 7% and the market risk premium (kM - kRF ) is 2%. Determine which security would be the best investment? [Suppose you must select just one.]
|
Expected Return
|
Beta
|
|
|
a.
|
9.01%
|
1.70
|
|
b.
|
7.06%
|
0.00
|
|
c.
|
5.04%
|
-0.67
|
|
d.
|
8.74%
|
0.87
|
|
e.
|
11.50%
|
1.4
|