Use the following table to answer these questions
|
Market Return
|
Return on stock A
|
Return on stock B
|
|
12%
|
15%
|
-9%
|
|
8%
|
10%
|
5%
|
|
-6%
|
-5%
|
10%
|
Calculate the betas of stock A and B
How do these stocks react to changes in the market? What does this say about their potential diversification benefits?
Calculate the required rate of return on each stock to a well-diversified investor