Asked by Cierra Clark on May 07, 2024
Verified
According to the CAPM, what is the expected market return given an expected return on a security of 15.8%, a stock beta of 1.2, and a risk-free interest rate of 5%?
A) 5%
B) 9%
C) 13%
D) 14%
Expected Market Return
The average return that investors anticipate from the overall market over a certain period, based on historical trends and economic conditions.
Stock Beta
A gauge for assessing the risk or volatility inherent in a security or portfolio against the entire market's movements.
Risk-free Interest Rate
The theoretical rate of return of an investment with zero risk of financial loss, often represented by the yield on government bonds.
- Compute anticipated returns by applying the Capital Asset Pricing Model (CAPM) and various other financial methodologies.
Verified Answer
VF
Victoria FadakoMay 10, 2024
Final Answer :
D
Explanation :
15.8 = 5 + 1.2 × (MRP); MRP = 9%; Expected market return = 5 + 9 = 14%
Learning Objectives
- Compute anticipated returns by applying the Capital Asset Pricing Model (CAPM) and various other financial methodologies.