stock has a beta of 2.0. The correlation of the stock’s returns with the market is 0.5 and the variance of the returns on the market portfolio is 0.04. Calculate the variance of returns on the stoc
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.
A stock has a beta of 2.0. The correlation of the stock’s returns with the market is 0.5 and the variance of the returns on the market portfolio is 0.04. Calculate the variance of returns on the stock.
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