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Estimated rates of return for the three stocks


Problem: You expect the risk-free rate (RFR) to be 5 percent and the market return to be 12.2 percent. You also have the following information about three stocks               
Current Expected Expected
Stock Beta Price Price Dividend
X 1 26 26 0.75
Y 2 41.5 44 1.50
Z 2 50.00 58 0.95
       
Question 1: What are the expected (required) rate of return for the three stocks?                       
                       
Question 2: What are the estimated rates of return for the three stocks?                       
                       
Question 3: What is your investment strategy concerning the three stocks?Discuss your decision?

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Finance Basics: Estimated rates of return for the three stocks
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