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The stock of Argo, Inc., is expected to return 14% annually with a standard deviation of 8%. The stock of Benford, Inc., is expected to return 17%...
1.The stock of Argo, Inc., is expected to return 14% annually with a standard deviation of 8%. The stock of Benford, Inc., is expected to return 17% annually with a standard deviation of 12%. The beta of the Argo stock is 1.10, and the beta of the Benford stock is 0.60. The risk-free rate of return is expected to be 5%, but the return on the market portfolio is 16%.
Based on the Security Market Line (SML), what is the required rate of return for Argo given the current market situation?
17.10%
15.30%
13.20%
16.40%
2.Continued from Question 1, based on the security market line (SML), what is the required rate of return for Benford given the current market situation?
18.40%
17.40%
15.10%
11.60%
3.Continued from Question 1 and Question 2, which one is a better buy in the current market? (HINT: You
shall compare the expected returns of Argo and Benford given in the problem with their corresponding required rates of return you calculated in Question 1 and Question 2 respectively.)
Benford is a better buy since the required rate of return is greater than the expected return.
Argo is a better buy since the required rate of return is less than the expected return.
Argo is a better buy since the required rate of return is greater than the expected return.
Benford is a better buy since the required rate of return is less than the expected return.
