You are given the following partial covariance and correlation tables from historical data: Securities J K Market Securities J K Market Covariance Matrix K 0.0020480 0.0021600 Correlation Matrix K 0.60 1.00 0.90 J 1.00 0.60 0.80 Market 0.0020480 0.0021600 Market 0.80 0.90 1.00 Also, you have estimated that the market's standard deviation is 4.3 percent. For the coming year, the expected return on the market is 14.0 percent and the risk-free rate is expected to be 4.0 percent. Given this information, determine the beta for Security K for the coming year, assuming CAPM is the correct model for required returns.
You are given the following partial covariance and correlation tables from historical data: Securities J K Market Securities J K Market Covariance Matrix K 0.0020480 0.0021600 Correlation Matrix K 0.60 1.00 0.90 J 1.00 0.60 0.80 Market 0.0020480 0.0021600 Market 0.80 0.90 1.00 Also, you have estimated that the market's standard deviation is 4.3 percent. For the coming year, the expected return on the market is 14.0 percent and the risk-free rate is expected to be 4.0 percent. Given this information, determine the beta for Security K for the coming year, assuming CAPM is the correct model for required returns.
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:You are given the following partial covariance and correlation tables from historical data:
Securities
J
K
Market
Securities
J
K
Market
1.24
1.11
1.17
1.03
Covariance Matrix
K
0.90
J
0.0020480 0.0021600
Also, you have estimated that the market's standard deviation is 4.3 percent. For the coming year,
the expected return on the market is 14.0 percent and the risk-free rate is expected to be 4.0
percent. Given this information, determine the beta for Security K for the coming year, assuming
CAPM is the correct model for required returns.
Correlation Matrix
K
0.60
1.00
0.90
1.00
0.60
0.80
Market
0.0020480
0.0021600
Market
0.80
0.90
1.00
Ston sharing
Hidel lines
We
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