The data on the expected return of 2 stocks (M and C) along with the economic conditions and their probabilities is attached below Questions : Calculate the expected return for asset M and asset C. Calculate the standard deviation for asset M and asset C. c) If asset M is a market portfolio, while the beta (β) for asset C is 1.25 and the risk-free asset is 6%. What is the required rate of return for asset C according to the CAPM method ?. .
The data on the expected return of 2 stocks (M and C) along with the economic conditions and their probabilities is attached below Questions : Calculate the expected return for asset M and asset C. Calculate the standard deviation for asset M and asset C. c) If asset M is a market portfolio, while the beta (β) for asset C is 1.25 and the risk-free asset is 6%. What is the required rate of return for asset C according to the CAPM method ?. .
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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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.
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- The data on the expected return of 2 stocks (M and C) along with the economic conditions and their probabilities is attached below
Questions :
- Calculate the expected
return for asset M and asset C. - Calculate the standard deviation for asset M and asset C.
- c) If asset M is a market portfolio, while the beta (β) for asset C is 1.25 and the risk-free asset is 6%. What is the required
rate of return for asset C according to theCAPM method ?. .
Transcribed Image Text:Economic
Probability
Rate of Returu
Condition
M
1
0,20
0.03
0.09
0.20
0.17
0.16
0.30
0.28
0.10
4
0.20
0.05
0.02
5
0.10
0.04
0.16
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