Problem: You expect the risk-free rate (RFR) to be 3 percent and the market return to be 8 percent. You also have the following information about three stocks.
Stock Beta Current Price Expected Price Expected Dividend
X 1.25 $ 20 $ 23 $ 1.25
Y 1.50 $ 27 $ 29 $ 0.25
Z 0.90 $ 35 $ 38 $ 1.00
a. What are the expected rates of return for the three stocks?
b. What are the estimated rates of return for the three stocks?
c. What is your investment strategy concerning the three stocks?