Suppose that the Treasury bill rate is 7% rather than 5%, as we assumed in Table 12.1, and the expected return on the market is 11%. Use the betas in that table to answer the following questions. c. Suppose now that you continued to assume that the expected return on the market remained at 11%. Now what would be the expected returns on each stock?
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.
Suppose that the Treasury bill rate is 7% rather than 5%, as we assumed in Table 12.1, and the expected return on the market is 11%. Use the betas in that table to answer the following questions.
c. Suppose now that you continued to assume that the expected return on the market remained at 11%. Now what would be the expected returns on each stock? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
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