Q- vipul The resident Economist in the Investment Firm you work for has generated thfollowing expected end-of-year prices for Apple and the market portfolio,conditional on the state of the economy. The market portfolio and Apple areselling for $150 and $40 today.State of the Economy Probability Market Portfolio Apple StockExtreme Growth 0.20206.2546.75Normal Growth0.50156.2552.75Recession0.20112.5058.00Depression0.10100.0059.50Use this information to answer the following questions.Report your answer as a number (Example 1.0).What is the expected return of Apple according to the CAPM if the risk-freerate is 2%?

The capital asset pricing model aids analysts and investors in calculating the expected return on…

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What is the expected return of Apple according to the CAPM if the risk-free rate is 2%?

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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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

Q- vipul

The resident Economist in the Investment Firm you work for has generated th
following expected end-of-year prices for Apple and the market portfolio,
conditional on the state of the economy. The market portfolio and Apple are
selling for $150 and $40 today.
State of the Economy Probability Market Portfolio Apple Stock
Extreme Growth 0.20
206.25
46.75
Normal Growth
0.50
156.25
52.75
Recession
0.20
112.50
58.00
Depression
0.10
100.00
59.50
Use this information to answer the following questions.
Report your answer as a number (Example 1.0).
What is the expected return of Apple according to the CAPM if the risk-free
rate is 2%?

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