Stock X :Standard Deviation= 15% Correlation Coefficient SP 500=.75 Return Required: SP500:Standard Deviation= 25% Correlation Coefficient SP 500=1 Return Required=12% T-Bill:Standard Deviation= 0% Correlation Coefficient SP 500=0 Return Required=3.5%
1. Find undiversifiable risk of stock x?
2. Beta for stock X?
3. What is the risk premium ?
4. Required rate of return for stock X ? if expected cash flow from stock X is $50 2 years hence then what is the value of the Stock X?