If the expected return on State Farm from the Capital Asset Pricing Model (the CAPM) is 0.20, and if the risk free rate of interest is 0.05, and if the expected return on the market portfolio is 0.20, then which of the following comes closest to State Farm's beta? A 0.50 B 1.50 C 0.00 D 1.00
If the expected return on State Farm from the Capital Asset Pricing Model (the CAPM) is 0.20, and if the risk free rate of interest is 0.05, and if the expected return on the market portfolio is 0.20, then which of the following comes closest to State Farm's beta? A 0.50 B 1.50 C 0.00 D 1.00
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
![If the expected return on State Farm from
the Capital Asset Pricing
Model (the CAPM) is 0.20, and if the risk free rate of
interest is 0.05, and if the expected return on the
market portfolio is 0.20, then which of the following
comes closest to State Farm's beta?
A 0.50
B 1.50
C 0.00
D 1.00](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe85315c4-fa88-46ce-ac5d-09536ecd6075%2F4d85d922-3822-415f-a0cb-a5c99b32cb8a%2F7dglqq5_processed.jpeg&w=3840&q=75)
Transcribed Image Text:If the expected return on State Farm from
the Capital Asset Pricing
Model (the CAPM) is 0.20, and if the risk free rate of
interest is 0.05, and if the expected return on the
market portfolio is 0.20, then which of the following
comes closest to State Farm's beta?
A 0.50
B 1.50
C 0.00
D 1.00
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