An asset has a beta of 2.0 and an expected return of 20%. The expected risk...

An asset has a beta of 2.0 and an expected return of 20%. The expected risk premium on the market portfolio is 5% and the risk-free rate is 7%. What is the equilibrium return?

Select one:

a. 0.14

b. 0.17

c. 0.13

d. 0.20

Solutions

Expert Solution

Equilibrium return = Risk-free rate + Beta(Risk premium)

Equilibrium return = 0.07 + 2.0(0.05)

Equilibrium return = 0.17 or 17%

jeff jeffy answered 1 year ago

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