Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please help answer this question.
Transcribed Image Text:An antitrust case has lead to you having to calculate a fair return (using the CAPM) for RadioEthiopea common stock. The risk free rate is 2.90%, while the expected return on the market is 5.80%. The shares have a volatility of 23.00%, while the market has a volatility of 13.00%. The correlation between
the two sets of returns is 0.03. What is the fair return for RadioEthiopea common stock?
2.95%
3.05%
O 2.99%
O 3.21%
Expert Solution
Step 1
Given:
Market volatility =13%
Share volatility = 23%
Correlation = 0.03
Risk free rate =2.90%
Expected market return = 5.80%
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