Use the following information to answer the question(s) below.
Assume that the CAPM is a good description of stock price returns. The market expected return is 8% with 12% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers, but it does change the expected returns of the following stocks:

-Which of the following stocks represent buying opportunities?
1)Taggart Transcontinental
2)Rearden Metal
3)Wyatt Oil
4)Nielson Motors

Question

Use the following information to answer the question(s) below.
Assume that the CAPM is a good description of stock price returns. The market expected return is 8% with 12% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers, but it does change the expected returns of the following stocks:
 
-Which of the following stocks represent buying opportunities?
1)Taggart Transcontinental
2)Rearden Metal
3)Wyatt Oil
4)Nielson Motors

Quizplus · Accepted Answer

D) α_i = E[r_s] - r_f - β_i(r_m - r_f), where r_f - β_i(r_m - r_f) is the CAPM return 11ea7e54_8c6b_d0a6_ba34_5f9883543529_TB1620_00 Both Rearden Metal and Nielson Motors represent buying opportunities due to their positive expected alphas.

Use the Following Information to Answer the Question(s) Below