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Market Portfolio Stock A Boom 25% 20% Recession -10% -8% Above is the returns of the...

Market Portfolio

 Stock A
Boom 25% 20%
Recession -10% -8%

Above is the returns of the market portfolio and stock A in the 2 possible scenarios. The probability of the boom scenario and the recession scenario are both 50%. Please estimate the beta coefficient for stock A.


Continuing the previous question. The risk-free interest rate is 1%. According to the beta you estimated in the last question, what is the expected return for stock A according to CAPM?

Hint: use the probability weighted average market return for CAPM.

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Answer #1

ANSWER IN THE IMAGE ((YELLOW HIGHLIGHTED). FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE. THUMBS UP PLEASE.

Beta= 0.80

Expected Return= 6.20%

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