The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.5? (Do not round intermediate calculations. Enter your answer as a whole percent.) d. If the market expects a return of 11.2% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.5? (Do not round intermediate calculations. Enter your answer as a whole percent.) d. If the market expects a return of 11.2% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 1 decimal place.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 14P: You have observed the following returns over time: Assume that the risk-free rate is 6% and the...

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Concept explainers

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.

Question

The Treasury bill rate is 49%, and the expected return on the market portfolio is 12%. According to the capital
asset pricing model: a. What is the risk premium on the market? b. What is the required return on an
investment with a beta of 1.5? (Do not round intermediate calculations. Enter your answer as a whole
percent.) d. If the market expects a return of 11.2% from stock X, what is its beta? (Do not round
intermediate calculations. Round your answer to 1 decimal place.)

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