Question

In: Finance

Consider the CAPM. The expected return on the market is 10%. Theexpected return on a...

Consider the CAPM. The expected return on the market is 10%. The expected return on a stock with a beta of 1.7 is 19%. What is the risk-free rate?

Solutions

Expert Solution

R = Rf+ B(Rm-Rf)
Where,
Rf = Risk Free Return
B= Beta
Rm = Market rate of return
Rm-Rf= Risk Premium
19%=Rf+1.7*(0.1-Rf)
0.19 =Rf + 0.17 -Rf 1.7
0.19 =-0.7rf +0.17
Rf = -2.86%
risk free rate = -2.86%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

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.
1. Consider the CAPM. The risk-free rate is 4%, and the expected return on the market...
1. Consider the CAPM. The risk-free rate is 4%, and the expected return on the market is 18%. What is the expected return on a stock with a beta of 1.2? A. 6% B. 15.6% C. 18% D. 20.8% 2. The CAL provided by combinations of 1-month T-bills and a broad index of common stocks (i.e. market portfolio) is called the ______. A. SML B. CAPM C. CML D. total return line
1) Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y=...
1) Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6 Portfolios: A portfolio of stock X and rf with a 50% equal weighted investment yielded a STANDARD DEVIATION of 3. A portfolio of stock Y and rf with a 25% investment in stock Y yielded a STANDARD DEVIATION of 1. A portfolio of the market and rf with a 50% investment in the market yielded a STANDARD DEVIATION of 1. An equally weighted...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6 Portfolios: A portfolio of stock X and rf with a 50% equal weighted investment yielded a STANDARD DEVIATION of 3. A portfolio of stock Y and rf with a 25% investment in stock Y yielded a STANDARD DEVIATION of 1. A portfolio of the market and rf with a 50% investment in the market yielded a STANDARD DEVIATION of 1. An equally weighted portfolio...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6 Portfolios: A portfolio of stock X and rf with a 50% equal weighted investment yielded a STANDARD DEVIATION of 3. A portfolio of stock Y and rf with a 25% investment in stock Y yielded a STANDARD DEVIATION of 1. A portfolio of the market and rf with a 50% investment in the market yielded a STANDARD DEVIATION of 1. An equally weighted portfolio...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6 Portfolios: A portfolio of stock X and rf with a 50% equal weighted investment yielded a STANDARD DEVIATION of 3. A portfolio of stock Y and rf with a 25% investment in stock Y yielded a STANDARD DEVIATION of 1. A portfolio of the market and rf with a 50% investment in the market yielded a STANDARD DEVIATION of 1. An equally weighted portfolio...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6 Portfolios: A portfolio of stock X and rf with a 50% equal weighted investment yielded a STANDARD DEVIATION of 3. A portfolio of stock Y and rf with a 25% investment in stock Y yielded a STANDARD DEVIATION of 1. A portfolio of the market and rf with a 50% investment in the market yielded a STANDARD DEVIATION of 1. An equally weighted portfolio...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6...
Rf=2%, Rm= 10% According to the CAPM model Expected Return X= 10 Expected Return Y= 6 Portfolios: A portfolio of stock X and rf with a 50% equal weighted investment yielded a STANDARD DEVIATION of 3. A portfolio of stock Y and rf with a 25% investment in stock Y yielded a STANDARD DEVIATION of 1. A portfolio of the market and rf with a 50% investment in the market yielded a STANDARD DEVIATION of 1. An equally weighted portfolio...
Assume that the CAPM is a good description of stock price returns. The market expected return...
Assume that the CAPM is a good description of stock price returns. The market expected return is 7% with 10% volatility and the risk-free rate is 3%. New news arrives that does not change any of these numbers but it does change the expected return of the following stocks Expected Return Volatility Beta Green Leaf 12% 20% 1.50 NatSam 10% 40% 1.80 HanBel 9% 30% 0.75 Rebecca Automobile 6% 35% 1.20 a. At current market prices, which stocks represent buying...
Assume the CAPM holds and the return on the market portfolio is 10%, its standard deviation...
Assume the CAPM holds and the return on the market portfolio is 10%, its standard deviation is 10% and the risk-free rate is 5%. Can each of the following assets exist in equilibrium? Explain. a) A bond with expected return 0% and standard deviation 1% b) A put option with expected return 50% and standard deviation of 100% c) A stock with an expected return of 10% and the standard deviation of 9% d) A call option with Sharpe ratio...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT