You were offered 2 investment opportunities, Stock M and Stock D. Your decision as to which investment to take will be based on the results of the comparative Expected Rate of Return using the following data: Stock M Return is 9.6% and Beta is 0.95 while Stock D Return is 8.7% and Beta is 1.2. A risk free return in the market, as measured by the return on government stock is 5.6%. *

Q: . Mubita is contemplating on investing in Stocks A and B with the following probability…

A: The CAPM model that is capital asset pricing model gives the required rate on the stock based on the…

Q: Given the current risk-free rate is 9% and the market return is 12%. Investment Beta A 0.65 1.12…

A: The required rate of return represents the minimum return investors willing to accept for the given…

Q: The current appropriate risk-free rate is 6% and the return on the market is 13.5%.   levered beta…

A: Risk Free Rate = 6% Expected Return on market portfolio = 13.5% Beta = 1.29

Q: Please do this in Excel using relevant formulas. Stock A has a beta of 0.5, and investors expect it…

A: CAPM stands for capital asset pricing model. CAPM shows the relationship between expected return and…

Q: which of the securities listed above are underpriced? Assuming that a portfolio is constructed using…

A: CAPM assumes that all investors invest in the market portfolio that is diversified. This lead to…

Q: 2. Consider a market with an expected return of 20%, a risk (o) of 25% and a risk-free rate of 7%.…

A: Portfolio Risk: Portfolio risk refers to the degree of uncertainty or variability in the returns of…

Q: Table attached shows the historical returns for Companies A, B and C If one investor has a…

A: The expected return of the stock refers to the profits that the stock provides on average. It is…

Q: What is the required return on an investment with a beta of 1.4 if the risk-free rate is 2.2 percent…

A: Capital Asset Pricing Model (CAPM) equation is used to determine the required return on an…

Q: You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 36%.…

A: Given, Expected return = 17% Standard deviation = 36% T-bill rate = 6%

Q: The risk-free rate is 4%, and the required return on the market is 12%. b. A portfolio invests 40%…

A: Portfolio return is the weighted average return of individual assets   Portfolio return = (WeightA *…

Q: An investor has an investment that has produced the following returns: Year 1: 10%, Year 2: 5%, Year…

A: Arthmetic mean is rate of return that is calculated by summing up all returns and dividing by the…

Q: what is the stock's predicted return

A: Market return is 10%return on the SMB portfolio (rSMB) is 2.0 return on the HML portfolio (rHML) is…

Q: 1. Given the following summary statistics, Mean Asset A 0.52 Asset B 0.44 S.D. 1.235 0.997 (a) If…

A: Since your questions has multiple subparts, we will provide answer to first two parts.   Asset…

Q: Assume that you are using the Capital Asset Pricing Model (CAPM) to find the expected return for a…

A: The Capital Asset Pricing Model (CAPM) is a financial model used to estimate the expected return on…

Q: Suppose that the risk-free rate is 3.00% per annum. In addition, assume that the market portfolio…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub- parts…

Q: Suppose the market risk premium is 4.0 % and the risk-free interest rate is 3.0%. Use the data below…

A: Given details are : Market risk premium = 4% Risk free rate = 3% Beta = 2.28 From above details we…

Q: a.) Using Capital Asset Pricing Model (CAPM) to compute an appropriate rate of return for Intel…

A: In this question we are required to calculate rate of return of Intel common stock using CAPM: As…

Q: please give me answer in relatable

A: For the purpose of calculating the anticipated return on the portfolio, we make use of the Capital…

Q: Which stock should have a higher actual return next year

A: The beta of a stock is the degree of responsiveness to movements in price with changes in the stock…

Q: The following data have been developed for Ding Corp. State Market Return 1 2 3 4 Probability 0.10…

A: Capital Asset Pricing Model is used to determine the required return on the stock which is risk free…

Q: Lena Horn bought a Toyota Tundra on January 1 for $30,800 with an estimated life of 6 years. The…

A: a. Depreciation per annum = ( Cost - Salvage value) / Useful life

Q: What is the required return on an investment with a beta of 1.4 if the risk-free rate is 2.2 percent…

A: Formula:- Required return = Risk free rate + beta*(market rate- risk free rate)

Q: assume that expected return of the stock A in Rachel's portfolio is 13.6% this year.The risk premium…

A:

Q: Questions: a. Compute the expected return for stock X and for stock Y b. Compute the standard…

A: Expected returns refer to a profit or loss that is attained by the investor over the investment. It…

Q: Karen Kay, a portfolio manager at Collins Asset Management, is using the capital asset pricing model…

A: The objective of the question is to calculate the expected return and alpha for each stock using the…

Q: You are reviewing two investment opportunities: the shares of company A and company B. Company A has…

A: Risk refers to variability of return and is measured by the standard deviation. The total risk of a…

Q: Forecast Returns, Standard Deviations, and Betas Forecast Return Standard Deviation Beta Low β stock…

A: Expected return for each stock- = Rf+ beta (Rm-Rf) Stock X= 0.05+ 0.8x (0.14-0.05) = 12.20% Stock Y=…

Q: You have been given the following information: The required return of the market is 14.5% The risk…

A: This question has two parts. In the 1st part we need to Calculate the required rate of return. In…

Q: Calculate the Sharpe ratio, Treynor ratio, M-squared and Jensen's alpha for a stock with an expected…

A: 1) Sharp ratio = (Return of the portfolio - Return of Risk free investment) / Standard deviation of…

Q: Interpret your results in (c) above, assuming that the historical average return of 8.5% from the…

A: d) In part c, at a rate of 8.59% the stock is considered to be fairly priced. However, since the…

Q: You have two assets in your portfolio. Asset X has a beta of 1.7 and Asset Y has a beta of 0.50. The…

A: Assets: Assets are economic resources owned by an individual, corporation, or country. In finance,…

Q: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market…

A: Market return is 12% return on the SMB portfolio (rSMB) is 2.1%  return on the HML portfolio (rHML)…

Q: a.  Given the information in the​ table, the expected rate of return for stock A is enter your…

A: Expected Rate of Return = (Probability 1 x Return 1) + (Probability 2 x Return 2) + (Probability 3 x…

Q: Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium…

A: Stock returns:Stock returns refer to the financial gains or losses that an investor experiences…

Q: Help me with part E please. Thank you so much a) Discuss the main assumptions of the Capital Asset…

A: You has asked for help in part (e). Hence, the solution focuses only on part (e). In this part, the…

Q: What is the required rate of return for Stock X based on the capital asset pricing model (CAPM)?

A: Required Rate of Return for Stock: It is a minimum acceptable rate of return for equity investors…

Q: Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the…

A: CAPM is the relationship between systematic risk and returns for assets. This concept is used for…

Q: Suppose that the index model for stocks A and B is estimated from excess returns with the following…

A: Given:   Constant Beta Standard deviation Proportions A 2.60% 0.9 21% 0.7 B -2.00% 1.2 12%…

Q: An analyst has modeled the stock of a company using the Fama - French three - factor model. The…

A: The objective of the question is to calculate the predicted return of a stock using the Fama-French…

Q: portfolio made up of the following three stocks if you want to distribute your investment as…

A: Return on portfolio is weighted average return of portfolio.

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.