Probability State of of State of Economy Economy 0.50 0.50 Bust Boom State of Economy Bust Boom Calculate the expected return on a portfolio of 65 percent Roll and 35 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Probability of State of Economy Security Returns if State Occurs 0.50 0.50 Roll -14% 25% Ross 18% 6% Portfolio Return if State Occurs % % E(Rp)= Product % % %
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.
Probability State of of State of Economy Economy 0.50 0.50 Bust Boom State of Economy Bust Boom Calculate the expected return on a portfolio of 65 percent Roll and 35 percent Ross by filling in the following table: Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Probability of State of Economy Security Returns if State Occurs 0.50 0.50 Roll -14% 25% Ross 18% 6% Portfolio Return if State Occurs % % E(Rp)= Product % % %
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