Under the following conditions, what are the expected returns for stocks X and Y?

$\begin{array}{ll}
\lambda^{0}=0.04 & b_{x, 1}=1.2 \
k_{1}=0.035 & b_{x, 2}=0.75 \
k_{2}=0.045 & b_{y, 1}=0.65 \
& b_{y, 2}=1.45
\end{array}$

A) 11.58% and 12.8%
B) 15.65% and 18.23%
C) 13.27% and 15.6%
D) 18.2% and 16.45%
E) None of the above

Question

Under the following conditions, what are the expected returns for stocks X and Y?

$\begin{array}{ll}
\lambda^{0}=0.04 & b_{x, 1}=1.2 \
k_{1}=0.035 & b_{x, 2}=0.75 \
k_{2}=0.045 & b_{y, 1}=0.65 \
& b_{y, 2}=1.45
\end{array}$

A) 11.58% and 12.8%
B) 15.65% and 18.23%
C) 13.27% and 15.6%
D) 18.2% and 16.45%
E) None of the above

Quizplus · Accepted Answer

The expected return for stock X is:$E(R_x) = \lambda^0 + b_{x,1}k_1 + b_{x,2}k_2$$E(R_x) = 0.04 + 1.2(0.035) + 0.75(0.045) = 0.1158 = 11.58%$The expected return for stock Y is:$E(R_y) = \lambda^0 + b_{y,1}k_1 + b_{y,2}k_2$$E(R_y) = 0.04 + 0.65(0.035) + 1.45(0.045) = 0.128 = 12.8%$

Under the Following Conditions, What Are the Expected Returns for Stocks