SECURITIES BETA EXPECTED RETURN GOOGLE 1.25 19% APPLE 0.75 15% if the risk free rate is 6% and are the securites are correctly priced according to CAPM? WHAT WOULD BE THE RISK FREE RATE IF THERE ARE CORRECTLY PRICED

SECURITIES BETA EXPECTED RETURN GOOGLE 1.25 19% APPLE 0.75 15% if the risk free rate is 6% and are the securites are correctly priced according to CAPM? WHAT WOULD BE THE RISK FREE RATE IF THERE ARE CORRECTLY PRICED

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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Question

SECURITIES	BETA	EXPECTED RETURN
GOOGLE	1.25	19%
APPLE	0.75	15%

if the risk free rate is 6% and are the securites are correctly priced according to CAPM? WHAT WOULD BE THE RISK FREE RATE IF THERE ARE CORRECTLY PRICED

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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INV2 P1 3 You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. Does portfolio P have a positive or negative alpha relative to its required return given its level of risk?
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