Risk free rate of vetun is 3% Market return (or market portfolio's rate of return) = 10% %3D IBM stock's beta = 1.2 Then, based on the CAPM (capital asset pricing model), IBM stock's required rate of return (or minimum acceptable return or fair rate of return) = risk-free return + beta*(market return minus risk-free return) = 3% + 1.2*(10% - 3%) = 11.4% Also, the market risk premium (or market portfolio's risk premium) = market return minus risk- %3D free return = 10% - 3% = 7% %3D i) suppose that a stock's beta is 0.7. If the risk-free rate of return is 4% and the market risk premium is 8%, what is the stock's required rate of return? j) Explain some issues on the CAPM.

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
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Refer to i and j in the picture.  I need answers to those with the steps.

Risk free rate of vetun is 3%
Market return (or market portfolio's rate of return) = 10%
%3D
IBM stock's beta = 1.2
Then, based on the CAPM (capital asset pricing model), IBM stock's required rate of return (or
minimum acceptable return or fair rate of return)
= risk-free return + beta*(market return minus risk-free return) = 3% + 1.2*(10% - 3%) = 11.4%
Also, the market risk premium (or market portfolio's risk premium) = market return minus risk-
%3D
free return = 10% - 3% = 7%
%3D
i) suppose that a stock's beta is 0.7. If the risk-free rate of return is 4% and the market risk
premium is 8%, what is the stock's required rate of return?
j) Explain some issues on the CAPM.
Transcribed Image Text:Risk free rate of vetun is 3% Market return (or market portfolio's rate of return) = 10% %3D IBM stock's beta = 1.2 Then, based on the CAPM (capital asset pricing model), IBM stock's required rate of return (or minimum acceptable return or fair rate of return) = risk-free return + beta*(market return minus risk-free return) = 3% + 1.2*(10% - 3%) = 11.4% Also, the market risk premium (or market portfolio's risk premium) = market return minus risk- %3D free return = 10% - 3% = 7% %3D i) suppose that a stock's beta is 0.7. If the risk-free rate of return is 4% and the market risk premium is 8%, what is the stock's required rate of return? j) Explain some issues on the CAPM.
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