The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. According to the capital asset pricing model: a. What is the risk premium on the market? 6. What is the required return on an investment with a beta of 1.5? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.7 offers an expected return of 9.5%, does it have a positive or negative NPV? d. If the market expects a return of 11.8% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. Market risk premium % b. Return on investment % NPV с. d. Beta
The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. According to the capital asset pricing model: a. What is the risk premium on the market? 6. What is the required return on an investment with a beta of 1.5? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.7 offers an expected return of 9.5%, does it have a positive or negative NPV? d. If the market expects a return of 11.8% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.) a. Market risk premium % b. Return on investment % NPV с. d. Beta
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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Transcribed Image Text:The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. 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
percent rounded to 1 decimal place.)
c. If an investment with a beta of 0.7 offers an expected return of 9.5%, does it have a positive or negative NPV?
d. If the market expects a return of 11.8% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer
to 2 decimal places.)
a.
Market risk premium
%
b.
Return on investment
%
c.
NPV
d.
Beta
Expert Solution
Step 1 Introduction
Dear Student as per Bartleby's answering guideline we can not answer more than three sub-parts. to obtaining the answer of the remaining sub-parts please repost the question with the remaining sub-parts.
As per the capital asset pricing model, the expected or required rate of return is calculated as follows:
The required rate of return = Risk-free rate of return + ( Beta * Market risk premium )
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