Question

Manipulating CAPM???Use the basic equation for the capital asset pricing model ?(CAPM?) to work each of the following problems. a.??Find the required return for an asset with a beta of 0.810.81 when the? risk-free rate and market return are 99?% and 17 %17%?, respectively. b.??Find the ?risk-free rate for a firm with a required return of 12.98212.982?% and a beta of 1.891.89 when the market return is 10 %10%. c.??Find the market return for an asset with a required return of 8.4108.410?% and a beta of 0.560.56 when the? risk-free rate is 5 %5%. d.??Find the beta for an asset with a required return of 6.9506.950?% when the? risk-free rate and market return are 66?% and 8.5 %8.5%?, respectively. a.??The required return for an asset with a beta of 0.810.81 when the? risk-free rate and market return are 99?% and 17 %17%?, ?respectively, is nothing?%. ?(Round to two decimal? places.) b.??The? risk-free rate for a firm with a required return of 12.98212.982?% and a beta of 1.891.89 when the market return is 10 %10% is nothing?%. ?(Round to two decimal? places.) c. The market return for an asset with a required return of 8.4108.410?% and a beta of 0.560.56 when the? risk-free rate is 5 %5% is nothing?%. ?(Round to two decimal? places.) d.??The beta for an asset with a required return of 6.9506.950?% when the? risk-free rate and market return are 66?% and 8.5 %8.5%?, ?respectively, is nothing. ?(Round to two decimal? places.)

Answer #1

Security return= | Risk free return + Beta * (Market return - Security return) | ||

Solution A | |||

Security return= | 9% + 0.81 * (17% - 9%) | ||

Security return= | 15.48% | ||

Solution B | |||

12.98% | =Risk free return + 1.89 * (10% -Risk free return) | ||

12.98% | =Risk free return + 0.189 - 1.89*Risk free return) | ||

18.90%-12.98%= | 0.89* risk free return | ||

Risk free return= | 5.92%/0.89 | ||

Risk free return= | 6.65% | ||

Solution C | |||

8.41% | = 5% + 0.56 * (Market return -5%) | ||

8.41%/5% | =0.56 * (Market return -5%) | ||

1.682 | =0.56 * (Market return -5%) | ||

1.682%/0.56 | = (Market return -5%) | ||

3.00% | = (Market return -5%) | ||

Market return= | 8% | ||

Solution D | |||

6.95% | = 6% + Beta * (8.5% -6%) | ||

6.95%-6% | =Beta * 2.5% | ||

0.95% | =Beta * 2.5% | ||

Beta= | 0.95%/2.5% | ||

Beta= | 0.38 | ||

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