00:01
Hello students, in this question, we have to compute different values.
00:05
First of all, we need to compute expected return.
00:10
So, it is rf plus beta into a into rm minus rf is the rate of interest.
00:22
So, it is 2 % plus 1 .20 into 12 % minus 2%.
00:30
So, it will give us 13 .6%.
00:34
So, the expected return for stock b is, this is for stock a, we computed and for stock b, we are now computing, it is 2 % plus 0 .8 into 12 % minus 2%.
00:50
So, it will give us 9 .6%.
00:53
This means stock a is expected to have higher returns, stock a have higher returns than stock b, which makes sense since it is higher beta and therefore more market risk.
01:06
B, we need to compute, for b part, we need to compute expected return of an equally weighted portfolio of these two stocks...