Ross Law received an inquiry for the following specifics. Stock C provided the following returns for the past four years: 8%,3%, -2% and 12%. Likewise, the market also provided the following returns for the past: 6%, -8%,-8% and 18%. Compute for the stock’s beta. If the required return on the market is 11% and the risk-free rate is 6%, what is the required return on Stock C, according to CAPM/SML? *
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.
Ross Law received an inquiry for the following specifics. Stock C provided the following returns for the past four years: 8%,3%, -2% and 12%. Likewise, the market also provided the following returns for the past: 6%, -8%,-8% and 18%. Compute for the stock’s beta. If the required return on the market is 11% and the risk-free rate is 6%, what is the required return on Stock C, according to
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