What is the expected return on asset A if it has a beta of 0.5, the expected market return is 13%, and the risk-free rate is 3%? O 6.5% 8% 9.5% 7% 5%
What is the expected return on asset A if it has a beta of 0.5, the expected market return is 13%, and the risk-free rate is 3%? O 6.5% 8% 9.5% 7% 5%
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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![**Question:**
What is the expected return on asset A if it has a beta of 0.5, the expected market return is 13%, and the risk-free rate is 3%?
**Options:**
- 6.5%
- 8%
- 9.5%
- 7%
- 5%
**Explanation:**
This question is about calculating the expected return on an asset using the Capital Asset Pricing Model (CAPM). In CAPM, the expected return \( R \) is given by:
\[ R = \text{Risk-free rate} + \beta \times (\text{Market return} - \text{Risk-free rate}) \]
Where:
- The risk-free rate is 3%
- The beta (\( \beta \)) of asset A is 0.5
- The expected market return is 13%
You can plug in these values to calculate the expected return.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F537cca7c-787a-475d-9aba-926e9a602de3%2Fb3d2b3b9-45bf-4463-a708-6f84bbfe48dc%2F4q9y9vg_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Question:**
What is the expected return on asset A if it has a beta of 0.5, the expected market return is 13%, and the risk-free rate is 3%?
**Options:**
- 6.5%
- 8%
- 9.5%
- 7%
- 5%
**Explanation:**
This question is about calculating the expected return on an asset using the Capital Asset Pricing Model (CAPM). In CAPM, the expected return \( R \) is given by:
\[ R = \text{Risk-free rate} + \beta \times (\text{Market return} - \text{Risk-free rate}) \]
Where:
- The risk-free rate is 3%
- The beta (\( \beta \)) of asset A is 0.5
- The expected market return is 13%
You can plug in these values to calculate the expected return.
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