Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%. Company $1 Discount Store Everything $5 Actual return 12% 11% Standard deviation of returns 8% 10% Beta 1.5 1.0 What would be the required return for $1 Discount Store according to the capital asset pricing model (CAPM)? Enter your answer as a decimal.
Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%.
|
Company |
$1 Discount Store |
Everything $5 |
|
Actual return |
12% |
11% |
|
Standard deviation of returns |
8% |
10% |
|
Beta |
1.5 |
1.0 |
What would be the required return for $1 Discount Store according to the
A financial framework employed to estimate an asset's anticipated rate of return is termed the capital asset pricing model. The predicted returns on the market and a risk-free commodity, as well as the asset's correlation with or responsiveness to the market, are used by CAPM. The model establishes a relationship between all these variables to estimate any investment alternatives' expected return.
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