I am currently working on some practice problems to study for a test in my finance class and need help setting them up and calculating them:
I have listed the following problems below along with the answers for reference
15) recently you received a tip that the stock of bubbly incorporated is going to rise from $57 to $61 per share over the next year. You know that the annual return on the S&P 500 has been 9.25% and the 90 day T-bill rate has been yielding 3.75% per year over the past 10 years. if beta for bubbly is 0.85, will you purchase the stock?
a) yes because it is overvalued
b) no because it is overvalued
c) no because it is undervalued
d) yes because it is undervalued
e) yes because the expected return equals the estimated return
^ for this question, I am hoping to get an idea of how I can calculate the problem in order to understand why it is considered to be overvalued or undervalued and why
18) consider a risky asset that has a standard deviation of return of 15%. calculate the correlation between the risky asset and a risk-free asset
a) 1.0 b ) 0.0 c) -1.0 d) 0.5 e) -0.5
20) the expected return for a stock, calculated using the CAPM is 13.5%. the risk free rate if 7.5% and the beta of the stock is 0.80. calculate the implied return on the market