In a small economy for an island the risk free rate is 7 % but the required market returns are 10 %. Given the information for Stock A below calculate the beta co-efficient. Stock Return | Market Return - 5 % 8% + 5 % + 10 % + 15 % 10 % (a) 1.6 (b) 1.2 (c) -0.6 (d) -0.55| (e) 0.9

In a small economy for an island the risk free rate is 7 % but the required market returns are 10 %. Given the information for Stock A below calculate the beta co-efficient. Stock Return | Market Return - 5 % 8% + 5 % + 10 % + 15 % 10 % (a) 1.6 (b) 1.2 (c) -0.6 (d) -0.55| (e) 0.9

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

In a small economy for an island the risk free rate is 7 % but the required market returns
are 10 %. Given the information for Stock A below calculate the beta co-efficient.
Stock Return Market Return
- 5 %
- 8 %
+ 5 %
+ 10 %
+ 15 %
- 10 %
(а) 1.6
(b) 1.2
(c) -0.6
(d) -0.55|
(е) 0.9

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