a)
To discuss:
Calculation of required return.
Introduction:
b)
To discuss:
Calculation of risk free return.
Introduction:
Capital asset pricing model or CAPM establishes the relationship between the projected return for assets and systematic risk on the stocks.
c)
To discuss:
Calculation of market return.
Introduction:
Capital asset pricing model or CAPM establishes the relationship between the projected return for assets and systematic risk on the stocks.
d)
To discuss:
Calculation of beta.
Introduction:
Capital asset pricing model or CAPM establishes the relationship between the projected return for assets and systematic risk on the stocks.
Beta is an indicator of the risk tha measures the systematic risk of a risky investment by comparing the risky investment with the average risky asset in the market.
Want to see the full answer?
Check out a sample textbook solutionChapter 8 Solutions
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
- Manipulating CAPM Use the basic equation for the capital asset priding model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-tree rate and market return are 5% and 13%, respectively b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market retum are 6% and 9.7%, respectively a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is % (Round to two decimal places.)arrow_forward4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premiumarrow_forwardFor each of the cases shown in the following table, use the capital asset pricing model to find the required return. case risk free rate market return beta A 5% 8% 1.30 B 8% 13% 0.90 C 9% 12% -0.20 D 10% 15% 1.00 E 6% 10% 0.60 (solve using excel)arrow_forward
- For each of the cases shown in the following table, use the capital asset pricing model (CAPM) to find the required return and explain your answer. Case Risk-free rate Market return Beta (%) (%) 8 A 5 1.3 В 8. 13 0.9 C 9 12 -0.2 D 10 15 1.0 E 10 0.6arrow_forwardUse the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.65 when the risk-free rate and market return are 8% and 14%, respectively. b. Find the risk-free rate for a firm with a required return of 11.366% and a beta of 1.29 when the market return is 10%. c. Find the market return for an asset with a required return of 7.711% and a beta of 0.89 when the risk-free rate is 4%. d. Find the beta for an asset with a required return of 6.552% when the risk-free rate and market return are 6% and 8.4%, respectively.arrow_forwardUse the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively. b. Find the risk-free rate for a firm witha required return of 14.363% and a beta of 1.07 when the market return is 14%. C. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%. d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively. a. The required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively, is %.arrow_forward
- Q3a Please assist to answer Q3a in detail write uparrow_forwardWhat is the expected return on asset A if the expected return on the market is 8%, the risk-free rate is 4%, and the Beta of asset A is 2? You want to use Capital Asset Pricing Model (CAPM) Group of answer choices A) 12% B) 20% C) 16%arrow_forwardCan you answer all the question 8,9,10arrow_forward
- K Capital asset pricing model (CAPM) For the asset shown in the following table, use the capital asset pricing model to find the required return. (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Risk free rate, Re 2% The required return for the asset is (Round to two decimal places) Market return, f 8% CONTE Beta, b 0.2arrow_forwardHelparrow_forwardUse the required return-beta equation from the CAPM What is the required return if the risk-free rate is 4%, beta 1.5 and the expected market return 8%? What is the risk-free rate if beta is 1.1, the required return 8.4% and the expected market return 8%? What is beta if the risk-free rate is 4%, the required return 12% and the expected market return 8%? What is the expected market return if the risk-free rate is 4%, beta 1.5 and the required return 12%?arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning