a. If the market return increased by 13%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's return?
a. If the market return increased by 13%, what impact would this change be expected to have on the asset's return? b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return? c. If the market return did not change, what impact, if any, would be expected on the asset's 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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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.
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A firm wishes to assess the impact of changes in the market return on an asset that has a beta of 1.1.
a. If the market return increased by 13%, what impact would this change be expected to have on the asset's return ?
b. If the market return decreased by 9%, what impact would this change be expected to have on the asset's return?
c. If the market return did not change, what impact, if any, would be expected on the asset's return?
d. Would this asset be considered more or less risky than the market?
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d. Would this asset be considered more or less risky than the market?
The asset is a. Equally as risky the market portfolio, which has a beta of a. 1
b. less risky than b. 0
c. more risky than c. -1
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