Anita, Inc. is considering the following investments. The current rate on Treasury bills is 8 percent,...

Anita, Inc. is considering the following investments. The current rate on Treasury bills is 8 percent, and the expected return for the market is 12 percent. Using the CAPM, what rates of return should Anita require for each individual security?

Stock Beta
H 0.72
T 1.47
P 0.81
W 1.37

The expected rate of return for security H, which has a beta of 0.72, is...?

Expert Solution

Expected rate of return on Security as per CAPM = Risk free rate + beta*(Expected market return - risk free rate)

Security H = 8% + 0.72*(12%-8%) = 10.88%

Security T = 8% + 1.47*(12%-8%) = 13.88%

Security P = 8% + 0.81*(12%-8%) = 11.24%

Security W = 8% + 1.37*(12%-8%) = 13.48%

jeff jeffy answered 2 years ago

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