- Suppose your expectations regarding the stock price are as follows: Selling price = 100 T-bills = 6% dividend = 10 per 100 value State of market Probability Ending price Boom 0.3 140 Normal growth 0.4 110 Recession 0.3 80 Calculate the HPR for each scenario, the expected rate of return, and the risk premium on your investment, and standard deviation of excess return.

Q: 3. Given that the CAPM holds, what is the lowest possible standard deviation for an investor who…

A: Standard deviation is the measure of risk and volatility and is measured as a deviation from the…

Q: a) The expected return of Stock A  b) The expected return of Stock B  c) The expected return of…

A: The expected return on the portfolio is the weighted average of the return generated from the…

Q: You have the following stock with expected returns given the different economic outcomes. What is…

A: The return that we expect from a stock is not guaranteed. The expected returns figure will vary…

Q: The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the…

A: Investors have different options to make investments, and the motive behind investments is to…

Q: The following table is an analyst's best guess for the likelihood of various states of the economy…

A: Economy Probability (%) Ideal 0.2 20.0 Good 0.4 15.0 Fair 0.3 8.0…

Q: You are considering an investment in a portfolio P with the following expected returns in three…

A: The return that an investor expects while investing in any security is its expected return. If the…

Q: Intro We know the following expected returns for stocks A and B, given different states of the…

A: According to bartleby guidelines,  if question involves multiple subparts,  then 1st sub 3 parts…

Q: The market risk premium for next period is 9.00% and the risk-free rate is 2.40%. Stock Z has a beta…

A: The volatility of a stock in comparison to the market as a whole is measured by its beta. The…

Q: State of Economy Recession Normal Irrational exuberance Probability of State 0.25 0.45 0.30 Stock A…

A: Capital Asset Pricing ModelThe Capital Asset Pricing Model (CAPM) is a financial model used to…

Q: Suppose your expectations regarding the stock market are as follows: State of the Economy Boom…

A: Mean return is the average return. It takes into consideration all probabilities and their…

Q: Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a…

A: The Capital Asset Pricing Model (CAPM) is a financial model used to estimate the expected return on…

Q: Suppose your expectations regarding the stock price are as follows: State of the Market Boom Normal…

A: The standard deviation quantifies the level of risk associated with a stock, while the mean…

Q: For the coming year you have determined that the following possibilities are most likely for stock…

A: Working of the expected return on the stock A is shown:

Q: Suppose your expectations regarding the stock price are as follows: State of the Market…

A: Market Probability 0.35, 0.3, 0.35HPR ( including Dividend )44.5%, 14%, -16.5%Applying the Formula

Q: You are considering an investment in a portfolio P with the following expected returns in three…

A: STEP 1 One of the most fundamental ideas in business and investing is a portfolio. It's a phrase…

Q: Suppose the CAPM holds. You know that the average investor has a degree of risk aversion of 4.4. The…

A: The market risk premium is the difference between expected return and risk-free rate. The market…

Q: assume that expected return of the stock A in Rachel's portfolio is 13.6% this year.The risk premium…

A:

Q: Suppose the common stock of United Industries has a beta of 1.18 and an expected return of 11.9…

A: Market risk premium= Rm-Rfwhere,Rm= market returnRf= Risk-free rate

Q: The following expected return and the standard deviation of current returns are known:   Security…

A:

Q: Compute the CAPM alpha of ABC. % Compute the volatility of the idiosyncratic component of return of…

A: The alpha indicates how well an investment performs in relation to expectations. An investment…

Q: Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with a…

A: We are given following details : Expected return on market = 18% Beta = 1.2 Expected return on stock…

Q: iven the information below, calculate the reward-to-risk ratio implied by the CAPM pricing model.

A: The risk-reward ratio determines how much reward is there for risk of  every dollar.

Q: You are considering an investment in a portfolio P with the following expected returns in three…

A: Port Folio Beta: Portfolio beta indicates the relative volatility of a portfolio of individual…

Q: The market risk premium for next period is 5.28% and the risk-free rate is 2.55%. Stock Z has a beta…

A: Market risk premium= 5.28%Risk-free rate = 2.55%Stock Z beta = 1.14Expected return = 8.17%

Q: Suppose that the CAPM is a good model of risk in the stock market. Suppose also that the average…

A: Excess return on stocks = 10%Risk-free rate = 1%

Q: You expect the risk-free rate to be 4 percent and the market return to be 10 percent. You also have…

A: According to the capital asset pricing model (CAPM), the required return is the return that is…

Q: Assume that the risk-free rate is 7.7% and the market return is 10%. Calculate the expected rate of…

A: The required return is calculated using the CAPM model capital asset pricing model according to…

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.