单选题
Level I CFA candidate Adeline Bass is a member of an investment club.
At the next meeting, she is to recommend whether or not the club should purchase
the stocks of CS Industries and MG Consolidated. The risk-free rate is at 6
percent and the expected return on the market is 15 percent. Prior to the
meeting, Bass gathers the following information on the two stocks:
|
CS Industries |
MG Consolidated |
Current Market Value |
$25 |
$50 |
Expected Market Value in One Year |
$30 |
$55 |
Expected Dividend |
$1 |
$1 |
Beta |
1.2 |
0.80 |
Bass should
recommend that the club:
- A. purchase MG only.
- B. purchase both stocks.
- C. purchase CS only.
【正确答案】
C
【答案解析】the holding period ( or expected) return is calculated as : ( ending price - beginning price + any cash flows/dividends)/beginning price. The required return uses the equation of the SML: risk free rate + Beta × ( expected market rate - risk - free rate).
For CS Industries: ER=(30-25+1)/25=24%, RR=6+1.2×(15-6)=16.8%. Stock is underpriced - purchase.
For MG Consolidated: ER=(55-50+1)/50=12%, RR=6+0.80×(15-6)=13.2%.
Stock is overpriced -do not purchase.