Question

Assume the CAPM holds and kRF=7%, kM=15%. What is βA of a security with kA=15.4%?

Assume the CAPM holds and kRF=7%, kM=15%.

What is βA of a security with kA=15.4%?

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Homework Answers

Answer #1

> Concept

  • The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks.
  • CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.

> Formula

kA = kRF + ( kM - kRF ) * βA

> Calculation

15.4 = 7 + ( 15 - 7 ) * βA

βA = ( 15.4 - 7 ) / 8

βA = 1.05 Answer

Hope you understand the solution.

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