Last year, damen Inc. stock had an expected rate of return of 17.3% while the market risk-premium was 7.0% and the risk-free rate was 4.1%. For this coming year, if the market risk-premium is 2% higher but everything else like damen Inc. stock's beta or the risk free-rate stay the same as last year, what willl be the expected rate of return for the coming year for damen Inc. stock? Answer as a percent to two places. when you first solve for beta do not round that number at all. Use that number with all the digits or at least 5 places to obtain the new expected rate of return for the stock.
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.
Data given:
Expected rate of return = 17.3%
Market risk-premium = 7.0%
Risk-free rate = 4.1%
For this coming year, if the market risk-premium is 2% higher, but everything else stay the same as last year.
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