Hershey - equity beta-0.28, Starbucks - equity beta-1.20 Autodesk- equity beta-2.14
Suppose the market risk premium is 5% and the risk-free interest rate is 4%. Using the data above calculate the expected return of investing in
a. Starbucks' stock.
b. Hershey's stock.
c. Autodesk's stock.
Suppose Autodesk stock has a beta of 2.16, whereas Costco stock has a beta of 0.69. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, what is the expected return of a portfolio that consists of 60% Autodesk stock and 40% Costco stock, according to the CAPM?
Consider the following two, completely separate, economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together-in good times all prices rise together and in bad times they all fall together. In the second economy, stock returns are independent-one stock increasing in price has no effect on the prices of other stocks. Assuming you are risk-averse and you could choose one of the two economies in which to invest, which one would you choose? Explain.