If the rate of return on risk-free asset is 5% and you expect market return to be 14%, what the is the beta of this portfolio under the assumption that CAPM holds?

The expected return of a portfolio is 11%. If the rate of return on risk-free asset is 5% and you expect market return to be 14%, what the is the beta of this portfolio under the assumption that CAPM holds?

Solutions

Expert Solution

The formula for Capital asset Pricing Model is

Exp return= Risk free rate+Beta*(Market return- Riskfree rate)

Beta=(Exp return-Risk free rate)/(Market return-Riskfree Rate)

= (11-5)/(14-5)

BETA=0.67

Beta is unitless.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

The risk-free rate is 5%, the expected return on the market portfolio is 14%, and the...

The risk-free rate is 5%, the expected return on the market portfolio is 14%, and the standard deviation of the return on the market portfolio is 25%. Consider a portfolio with expected return of 16% and assume that it is on the efficient frontier. (a) What is the beta of this portfolio? (b) What is the standard deviation of its return? (c) What is its correlation with the market return? (d) Draw the portfolio in two diagrams: one in the...

Calculate portfolio X beta assuming that: risk-free rate is4,5%, market portfolio rate of return is...

Calculate portfolio X beta assuming that: risk-free rate is 4,5%, market portfolio rate of return is 18%, portfolio X expected rate of return is 19,2% and the portfolio X Jensen alpha is 0,0051.

Given that the risk-free rate is 5% and the expected return on the market portfolio is...

Given that the risk-free rate is 5% and the expected return on the market portfolio is 10%, if bush company's beta is 2, what is Dow's expected return? A. 18% B. 21% C. 10% D. 15% What is the best measure of risk for an asset that is to be held in isolation (one stock portfolio)? A. market risk B. Beta C. Diversifiable risk D. Standard deviation Which is the best measure of risk for choosing an asset which is...

According to the CAPM, a stock is twice as risky as the market portfolio The expected return of the market portfolio is 12 and the risk free rate is 6

Accordingto the CAPM, a stock is twice as risky as the market portfolio Theexpected return of the market portfolio is 12 and the risk free rate is 6 Thestock’s price is currently 10 An analyst predicts that the price will be 11 in oneyear According to the analyst, where does this stock plot relative to the SML? Ifthe analyst’s forecast is correct, then by what percentage would the stock’s pricehave to change today in order for it to plot on...

Assume that the CAPM holds, the risk-free rate is 2% per year, the expected return on...

Assume that the CAPM holds, the risk-free rate is 2% per year, the expected return on the market is 10% per year and that the annualized volatility (standard deviation) of market returns is 20%. Assume that the beta of IBM is 1.0, the beta of GM is 2.0, and their respective annualized return volatilities are 25% and 80%. What is the correlation between IBM and GM returns? Group of answer choices 0.8 0.4 -0.25 0

In a CAPM world, assume that the risk free rate is 5% and the market risk...

In a CAPM world, assume that the risk free rate is 5% and the market risk premium is 5%. a. Draw the Security Market Line. Briefly discuss why a security’s beta is a better measure of its risk than the standard deviation of its returns. b. A venture capitalist is considering whether to acquire a stake in any of the following fully equity financed startups. Each stake is expected to be sold after one year. The costs of each position,...

Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%,...

Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%, and the standard deviation of returns to the market portfolio is 20%, answer the following questions: You have $100,000 to invest. How should you allocate your wealth between the risk free asset and the market portfolio in order to have a 15% expected return? What is the standard deviation of your portfolio in (a)? Now suppose that you want to have a portfolio, which...

Consider the CAPM. The risk-free rate is 3% and the expected return on the market is...

Consider the CAPM. The risk-free rate is 3% and the expected return on the market is 17%. The expected return on a stock with a beta of 1.2 is %. Please enter your answer with TWO decimal points.

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect...

The risk-free rate is 4%. The expected market rate of return is 11%. If you expect CAT with a beta of 1.0 to offer a rate of return of 11%, you should: buy CAT because it is overpriced sell short CAT because it is overpriced sell stock short CAT because it is underpriced buy CAT because it is underpriced hold CAT because it is fairly priced

The risk-free rate of return is 6%, the expected rate of return on the market portfolio...

The risk-free rate of return is 6%, the expected rate of return on the market portfolio is 15%, and the stock of Xyrong Corporation has a beta coefficient of 2.3. Xyrong pays out 45% of its earnings in dividends, and the latest earnings announced were $9.00 per share. Dividends were just paid and are expected to be paid annually. You expect that Xyrong will earn an ROE of 18% per year on all reinvested earnings forever. a. What is the...

Subjects