Suppose the risk-free return is 4% and the market portfolio has an expected return of 10% and a volatility of 16%. 3M stock has a 22% volatility and a correlation with the market of 0.50. what is 3M's beta with the market? What capital market line portfolio has equivalent market risk, and what is the expected return?
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 the risk-free return is 4% and the market portfolio has an expected return of 10% and a volatility of 16%. 3M stock has a 22% volatility and a correlation with the market of 0.50. what is 3M's beta with the market? What capital market line portfolio has equivalent market risk, and what is the expected return?
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