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F. Naz
F. Naz, Bachelor's Degree
Category: Business and Finance Homework
Satisfied Customers: 5328
Experience:  Have completed B.COM and CA Finalist
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The expected rate of return 's stock should be about 9.5%

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The expected rate of return for XYZ's stock should be about 9.5% given a beta greater than 2. You also noticed the risk-free rate of capital tends to approximately 7.2% given the market expected return rate between 8%-9%. Although you are unable to give exact values for rates of return, you are asks whether you believe XYZ's stock is a poor investment. Please answer using the CAPM model in your argument as to support your claim
Submitted: 1 year ago.
Category: Business and Finance Homework
Customer: replied 1 year ago.
You are hired as an analyst for small private mutual fund. One day, while having lunch with the fund managers, they ask you for an opinion about XYZ, a small technology company. Being a keen observer of the market, you have deduced that the expected rate of return for XYZ's stock should be about 9.5% given a beta greater than 2. You also noticed the risk-free rate of capital tends to approximately 7.2% given the market expected return rate between 8%-9%.
Although you are unable to give exact values for rates of return, the manager asks whether you believe XYZ's stock is a poor investment. What do you tell the manager? (Be sure to use the CAPM model in your argument as to support your claim.)
Expert:  F. Naz replied 1 year ago.

According to CAPM, the minimum return is 7.2+2*.8 = 8.8% and maximum return is 7.2+2*1.8 = 10.8%, and the average of both is 8.8+10.8/2 = 9.8%. Keeping in view all these facts it is possible that the XYZ would be able to achieve expected return of around 9.5%, if market performs well, therefore it is not a poor investment, rather it is a good investment. Please rate the answer so I get credit for my efforts, thanks.