A stock has an expected return of 11.85 percent, its beta is 1.08, and the risk-free rate is 3.9 percent. What must the expected return on the market be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Market expected return %

A stock has an expected return of 11.85 percent, its beta is 1.08, and the risk-free rate is 3.9 percent. What must the expected return on the market be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Market expected return %

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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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

100%

A stock has an expected return of 11.85 percent, its beta is 1.08, and the risk-free rate is
3.9 percent. What must the expected return on the market be? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
Market expected return
%

A stock has an expected return of 10.45 percent, its beta is .85, and the expected return
on the market is 11.8 percent. What must the risk-free rate be? (Do not round
intermediate calculations and enter your answer as a percent rounded to 2 decimal
places, e.g., 32.16.)
Risk-free rate
%

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