Question

You are provided some data about the market: The expected return of the market portfolio is 11.8%, the market's volatility is 13.9%, and the risk-free rate is 2.9%.

If the beta of Johnson & Johnson (JNJ) is 0.83, according to the CAPM, what is the expected return of JNJ?

{Give your answer as a percentage with 2 decimals, e.g., if the answer is 0.0345224 (or 3.45224%) , enter 3.45 as your answer.}

Hint: basic CAPM question. See conclusion 4 of CAPM.

Answer #1

CAPM Ret = Rf + Beta ( Rm - Rf )

Rf = Risk free ret

Rm = Market ret

Rm - Rf = Risk Premium

Beta = Systematic Risk

Particulars |
Amount |

Risk Free Rate | 2.9% |

Market Return | 11.8% |

Beta | 0.8300 |

Risk Premium ( Rm - Rf) | 8.90% |

Beta Specifies Systematic Risk. Systematic risk specifies the How many times security return will deviate to market changes. SML return considers the risk premium for Systematic risk alone.Where as CML return considers risk premium for Total risk. Beta of market is "1".

CAPM Return = Rf + Beta ( Rm - Rf )

= 2.9 % + 0.83 ( 8.9 % )

= 2.9 % + ( 7.39 % )

= 10.29 %

Rf = Risk Free

**CAPM Ret of JNJ is 10.29%**

You are provided some data about the market: The expected return
of the market portfolio is 10.8%, the market's volatility is 13.4%,
and the risk-free rate is 1.9%.
If the beta of LEVI is 1.56, according to the CAPM, LEVI should
have some expected return. However, you think that LEVI has an
expected return of 13.4%.
What do you think is the alpha of LEVI?
Over the last year, the market realized a return of 16.8%, while
the risk-free rate...

You have been provided the following data on the securities of
three firms, the market portfolio, and the risk-free asset:
a. Fill in the missing values in the table.
(Leave no cells blank - be certain to enter 0 wherever
required. Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
Security
Expected Return
Standard Deviation
Correlation*
Beta
Firm A
.115
.26
.91
Firm B
.135
.45
1.46
Firm C
.116
.71
.30
The...

You have been provided the following data on the securities of
three firms, the market portfolio, and the risk-free asset:
a. Fill in the missing values in the table.
(Leave no cells blank - be certain to enter 0 wherever
required. Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
Security
Expected Return
Standard Deviation
Correlation*
Beta
Firm A
.102
.33
.83
Firm B
.142
.52
1.38
Firm C
.162
.63
.37
The market...

a) Suppose the risk-free rate is 4.4% and the market portfolio
has an expected return of 10.9%. The
market portfolio has variance of 0.0391. Portfolio Z has a
correlation coefficient with the market of 0.31
and a variance of 0.3407. According to the capital asset pricing
model, what is the beta of Portfolio Z?
What is the expected return on Portfolio Z?
b) Suppose Portfolio X has beta of 1 with expected return of 11.5%.
Draw the SML and comment...

The Treasury bill rate is 5%, and the expected return on the
market portfolio is 13%. According to the capital asset pricing
model:
a. What is the risk premium on the market?
b. What is the required return on an investment
with a beta of 1.8? (Do not round intermediate
calculations. Enter your answer as a percent rounded to 1 decimal
place.)
c. If an investment with a beta of 0.6 offers an
expected return of 8.8%, does it have...

You have been provided the following data about the securities
of three firms, the market portfolio, and the risk-free asset:
a.
Fill in the missing values in the table. (Leave no cells
blank - be certain to enter 0 wherever required. Do not round
intermediate calculations and round your answers to 2 decimal
places. (e.g., 32.16))
Security
Expected Return
Standard Deviation
Correlation*
Beta
Firm A
.100
.41
.86
Firm B
.150
.60
1.41
Firm C
.170...

Consider the following information:
Portfolio
Expected Return
Beta
Risk-free
12
%
0
Market
13.8
1.0
A
11.8
0.9
a. Calculate the expected return of portfolio
A with a beta of 0.9. (Round your answer to 2
decimal places.)
Expected return
%
b. What is the alpha of portfolio A.
(Negative value should be indicated by a minus
sign. Round your answer to 2 decimal
places.)
Alpha
%
c. If the simple CAPM is valid, is the above
situation possible?
Yes...

Suppose the risk-free return is 3.7% and the market portfolio
has an expected return of 11.2% and a standard deviation of 16%.
Johnson & Johnson Corporation stock has a beta of 0.28. What
is its expected return?

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). A stock has a beta of 1.02, the expected return on the
market is 0.09, and the risk-free rate is 0.05. What must the
expected return on this stock be? Enter the answer with 4 decimals
(e.g. 0.1234).
B).
You own a portfolio that has $4100 invested in Stock A and $4900
invested in Stock B. If the expected returns on these stocks are
0.18 and 0.01, respectively, what is the expected return on the
portfolio?
Enter the answer...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 5 minutes ago

asked 6 minutes ago

asked 20 minutes ago

asked 23 minutes ago

asked 33 minutes ago

asked 35 minutes ago

asked 39 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago