Your financial planner gave you the following information about the two stocks. The risk free rate is 3%.
Google expected return 15% s.d. of return 8% Beta 1.2
GE expected return 9% s.d. of return 5%
1. Which one is a better investment opportunity based on Sharpe Ratio?
2. You want to invest $2,400 on GE and the $5,600 on Google. What is the expected return of your portfolio of two stocks?
3. Given the risk free rate 3%, Google’s Beta and expected return rate above, what must be the expected return rate of the stock market E(rm) according to CAPM formula?