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Expected return:
Expected return of the market refers to the return earned from the market over and above the risk-free 
is the return that an investor must demand for inflation and the time-value of money, even when there is hardly any risk of any financial loss. Risk premium varies with the systematic risk in an investment. It is the market risk premium multiplied by the beta (ß) of a security. It is determined as the market risk premium multiplied by the beta of the security. The market risk premium is equal to the expected market return less the return earned from risk-free security.
The expected return can be calculated using the formula given below.
Where,
is the expected return.
is the risk free rate of return.
is the beta of the asset.
is the expected return of the market.
Beta:
Beta 
measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta 
of a market portfolio is always 1. However, the securities may have either higher or lower betas as compared to the beta of the market portfolio. The primary reason for this difference is the sensitivity of the individual industries to the economy.
The beta 
of a portfolio is the weighted average beta of the overall stocks in a portfolio.
The beta 
of a portfolio with three stocks, Stock E, Stock C, and Stock K can be calculated using the formula given below.
Where,
is the beta of a portfolio.
is the weight of a stock.
(a)
To determine:
The beta needed for the expectation to be consistent with the
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Chapter 12 Solutions
Fundamentals of Corporate Finance (3rd Edition) (Pearson Series in Finance)
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