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Question 6 (6 points) You have been provided the following data on the securities of three firms and the market
Question 6 (6 points)
You have been provided the following data on the securities of three firms and the market.
|
Security |
E[ri] Estimated From Security Prices |
si |
rim |
b |
|
Stock A |
0.15 |
0.06 |
1.0 |
1.5 |
|
Stock B |
0.15 |
0.18 |
0.5 |
2.25 |
|
Stock C |
0.10 |
0.02 |
1.0 |
0.5 |
|
Market Portfolio |
0.10 |
0.04 |
1.0 |
1.0 |
|
Treasury-Bills |
0.05 |
0.00 |
0.0 |
0.0 |
If CAPM describes how securities are priced in equilibrium, which of the three stocks would you invest in? Why?
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