Question

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 0.84 when the risk-free rate and market return are 77% and 15 % respectively.

b. Find the risk-free rate for a firm with a required return of 7.394% and a beta of 1.16 when the market return is 7 %.

c. Find the market return for an asset with a required return of 11.614% and a beta of 0.99 when the risk-free rate is 8 %.

d. Find the beta for an asset with a required return of 3.506% when the risk-free rate and market return are 33% and 5.2 %, respectively.

Answer #1

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Using the CAPM, estimate the appropriate required rate of
return for the three stocks listed here, given that the risk-free
rate is 6
percent and the expected return for the market is 17
percent.
STOCK
BETA
A
0.75
B
0.94
C
1.31
(Click on the icon located on the top-right corner of the data
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