The return from US Treasury bill is 5%. The expected rate of return required by the market for a portfolio is 15%. According to the CAPM. what is the rate of return of a stock with a Beta of
The return from US Treasury bill is 5%. The expected rate of return required by the market for a portfolio is 15%. According to the CAPM. what is the rate of return of a stock with a Beta of
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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Transcribed Image Text:The return from US Treasury bill is 5%. The expected rate of
return required by the market for a portfolio is 15%. According
to the CAPM, what is the rate of return of a stock with a Beta of
2.5?
a. 10%
b. 28%
C. 30%
d. 32.75%
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