Question

Consider the CAPM. The expected return on the market is 10%. The expected return on a stock with a beta of 0.7 is 8%. What is the risk-free rate?

7.00 |
||

13.00 |
||

11.00 |
||

5.00 |

Answer #1

Required return as per CAPM = Risk-Free rate + Beta ( Market Return - Risk-Free Rate)

8% = Risk Free Rate + 0.7 (10% - Risk Free Rate)

8% = Risk Free Rate + 7% - 0.7*Risk Free Rate

8% - 7% = Risk Free Rate - 0.7 * Risk Free Rate

1% = 0.3 * Risk Free Rate

Risk Free Rtae = 1% / 0.3

Risk Free Rate = 3.3333%

All the options given are wrong, kindly check with the provider. The correct Risk-Free Rate is 3.3333%.

If you substitute the options(7%, 13%, 11%, 5%) provided in the CAPM equation and try to find the Required Return, you will not get 8% which is provided as the Required Return. So the correct option should be 3.3333%

**If you find the solution to be helpful, kindly give a
thumbs up**

According to the CAPM, what is the market risk premium given an
expected return on a security of 17.0%, a stock beta of 1.4, and a
risk-free interest rate of 10%?
10.00%
14.00%
5.00%
7.70%

1.) According to the CAPM, what is the expected return on a
security given a market risk premium of 9%, a stock beta of 0.57,
and a risk free interest rate of 1%? Put the answers in decimal
place.
2.) Consider the CAPM. The risk-free rate is 2% and
the expected return on the market is 14%. What is the expected
return on a portfolio with a beta of 0.5? (Put answers
in decimal points instead of percentage)
3.) A...

Consider two stocks, A and B. Stock A has an expected return of
10% and a beta of 1.1. Stock B has an expected return of 16% and a
beta of 1.2. The market degree of risk aversion, A, is 4. The
variance of return on the market portfolio is 0.0175. The risk-free
rate is 5%. Required: (4*2.5 = 10pts) A. What is the expected
return of the market? B. Using the CAPM, calculate the expected
return of stock A....

Consider a stock of ABC Corporation whose CAPM beta is 2.5. The
expected annual return on the market is 12.25% and the annual
risk-free rate is 2.5%. The annual volatility of the market is
22.55% and the annual volatility of the stock is 62.33%. Find the
annual cost-of-capital for the stock and the correlation between
the return on the market and the ABC Corp. stock.

Consider the following information:
Portfolio
Expected Return
Beta
Risk-free
8
%
0
Market
10.2
1.0
A
8.2
0.7
a. Calculate the expected return of portfolio
A with a beta of 0.7. (Round your answer to 2
decimal places.)
b. What is the alpha of portfolio A.
(Negative value should be indicated by a minus sign. Round
your answer to 2 decimal places.)
c. If the simple CAPM is valid, is the above
situation possible?
Yes
No

() The risk-free rate and the expected market rate of return
are 0.056 and 0.125, respectively. According to the capital asset
pricing model (CAPM), what is the expected rate of return on a
security with a beta of 1.25?
(s) Consider the CAPM. The risk-free rate is 5%, and the
expected return on the market is 15%. What is the beta on a stock
with an expected return of 17%?
(A coupon bond pays annual interest, has a par value...

Use the required return-beta equation from the CAPM.
1. What is the required return if the risk-free rate is 3%, beta
1.5 and the required return for the market portfolio is 8%?
2. What is the risk-free rate if beta is 1.1, the required
return 8.4% and the required return for the market portfolio is
8%?
3. What is beta if the risk-free rate is 3%, the required return
10% and the required return for the market is 8%?
4....

Suppose that the market portfolio has an expected return of 10%,
and a standard deviation of returns of 20%. The risk-free rate is
5%.
b) Suppose that stock A has a beta of 0.5 and an expected return
of 3%. We would like to evaluate, according to the CAPM, whether
this stock is overpriced or underpriced. First, construct a
tracking portfolio, made using weight K on the market portfolio and
1 − K on the risk-free rate, which has the...

A stock has a beta of 0.79, the expected return on the market
is 11%, and the risk-free rate is 1.5%. Calculate the expected
return on the stock. (Enter percentages as decimals and round to 4
decimals)
A stock has an expected return of 20%, the risk-free rate is
1.5%, and the market risk premium is 8%. Calculate the beta of this
stock. (Round to 3 decimals)
A stock has an expected return of 10%, its beta is 0.59, and...

Consider a stock that has an expected return of 12.25%, a beta
of 1.25, and is in equilibrium. If the risk-free rate is 5.00%, the
market risk premium is closest to:
a.
5.80%
b.
6.09%
c.
6.25%

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 14 minutes ago

asked 45 minutes ago

asked 54 minutes ago

asked 54 minutes ago

asked 54 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago