Assume the risk free rate equals Rf = 4%, and the return on the market portfolio hasexpectation E [RM] = 12% and standard deviation σM = 15%.(a) What is the equilibrium risk premium (that is, the excess return on the marketportfolio)?(b) If a certain stock has a realized return of 14%, what can we say about the betaof this stock?(c) If a certain stock has an expected return of 14%, what can we say about the betaof this stock?

Assume the risk free rate equals Rf = 4%, and the return on the market portfolio hasexpectation E [RM] = 12% and standard deviation σM = 15%.(a) What is the equilibrium risk premium (that is, the excess return on the marketportfolio)?(b) If a certain stock has a realized return of 14%, what can we say about the betaof this stock?(c) If a certain stock has an expected return of 14%, what can we say about the betaof this stock?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P

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