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.

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