What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk - free rate of return is 7.0 percent and the expected return on the market is 18.0 percent ? Select one a . None of these b . 0.79 C. 1.30 d . 1.57

Q: stock with a beta of zero would be expected to have a rate of return equal to a. the risk-free rate…

A: Beta of stock tell about the risk of company and more is risk more is beta.

Q: Suppose that the market can be described by the following three sources of systematic risk with…

A: Step 1:In the context of the given problem, the equation provided…

Q: Consider the following two securities X and Y. Security Return Standard Deviation X 20.0% Y 10.0%…

A: Systematic risk is the market risk which is non-diversifiable in nature. It applies to all the firms…

Q: 1. We would generally find that the beta of a single security is more stable over time than the beta…

A: Since you have asked multiple question, we will solve the first questions for you. If you want any…

Q: Beta Expected Return ABC 1.05 XYZ 0.90 Suppose you observe the following situation: Assume these…

A: In the given case, beta  and the expected return of each security is given. So, the risk free rate…

Q: Find the Expected Return on Market Portfolio given that the Expected Return on Stock Y is 0.156 and…

A: A portfolio refers to the combination and collection of various financial instruments of all…

Q: Security Sinle-index Model Estimates X Y 2 3 1 Bi 1.5 1.3 0.8 o(e.) 3% 1% 2% Given the data for…

A: Expected Return on each security: E_X = alpha_i + Beta_i*E(r_m) = 2 + 1.5*0.08 = 2.12% Similarly,…

Q: The additional return over the risk-free rate needed to compensate investors for assuming an average…

A: Basis the general principle that higher risk security do have the higher returns, it is known that…

Q: Suppose you observe the following situation: Security Pete Corporation Repete Company Beta 1.70 1.39…

A: As per CAPM,Required return = Rf+[β∗MRP]Where Rf = risk free rateβ = BetaMRP = Market risk…

Q: Consider the following hypothetical firms with their respective beta ABC- 1 MNO- 0 QRS- 1.2 XYZ-…

A: beta : It is the measure of systematic  risk of security or portfolio compared to market risk.

Q: What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk - free…

A: Beta shows the systematic risk of the asset. The beta of the asset increases the expected rate of…

Q: Required Return Beta Risk-Free Rate Market Return A 12.5% 0.90 8% ? B 9.0% 1.3 ? 8% C…

A: The capital asset pricing model (CAPM) describes the relationship between systematic risk ( measured…

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: Expected return can be defined as the weighted average of the distribution of probable returns of…

Q: 30. Systematic versus Unsystematic Risk Consider on Stocks I and II: State of Probability of State…

A: Market risk premium is 7% Risk free rate is 4% To Find: Beta Standard deviation

Q: onsider the following information (Assume that Security M and Security N are in the same financial…

A: Expected return is calculated by using CAPM equation. CAPM measures systematic risk Expected return…

Q: 1. Risk free rate represents: a. The market rate of return b. The rate provided by long term…

A: 1. Risk free rate is the rate which is expected by investor with no risks.

Q: USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM   Stock Rit Rmt ai Beta C 12 10 0 0.8…

A: Abnormal return = Return in excess of market return in the given period = Rit - RmtFor stock C, the…

Q: What is the beta of a firm whose equity has an expected return of 21.3 percent when the risk-free…

A: Beta = ( Expected retrun -risk free rate)  / (market return - risk free rate )

Q: You are not given the expected return of stock X. The correlation of the returns on the stock X a…

A: Beta of stock shows the risk and volatility related to risk and volatlity related to the overall…

Q: 14. Risk free asset, the market, and stock X have the expected returns of 2%, 8%, and 12%…

A: The expected rate of return of the stock based on the risk involved in the stock is given by the…

Q: Exhibit 5.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)   Stock Rit Rmt ai Beta A…

A: Abnormal rate of return is referred as the return which differs from the expected return on…

Q: Suppose you observed the following situation:   Security Beta Expected Return   Cooley, Inc. 1.6 19%…

A: Calculation of Risk Free Rate:The risk free rate can be calculated using the CAPM. Follow the below…

Q: Consider the following information: Security C Security K Standard Deviation Beta 20% 30% 1.25 0.95…

A: To determine which security will have a higher expected return, we need to use the Capital Asset…

Q: Q6-Suppose that the rate of return on investment- free has risk %8 and the expected return rate for…

A: Part (a): Calculation of expected rate of return: Answer: Expected rate of return is 11.60%

Q: Suppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60…

A: As per CAPM,Required return = Rf+[β∗MRP]Where Rf = risk free rateβ = BetaMRP = Market risk…

Q: What is the Beta of Intrinsic Co.? Probability 0.48 0.35 0.17 a) 1.39 Ob) 1.13 c) 1.00 d)

A: Portfolio beta is a measure of an investment portfolio's overall volatility or systematic risk…

Q: You want to estimate the cost of equity of firm A using CAPM. Firm A has a beta of 1.3. Assume that…

A: Cost of equity refers to the return over the investment amount in exchange by the investors using a…

Q: Consider the following two securities X and Y. Y Security Expected Return Standard Deviation Beta…

A: Step 1:Systematic risk will be reflected through beta and the beta of portfolio will be the weighted…

Q: Consider the following information (Assume that Security M and Security N are in the same financial…

A: Total risk is the combination of systematic risk and unsystematic risk. Systematic risk is that part…

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.