1. A stock has an expectd return of 11.8 percent, its beta is .93, and the risk-
ID: 2791627 • Letter: 1
Question
1. A stock has an expectd return of 11.8 percent, its beta is .93, and the risk-free rate is 5.9 percent.
what must the expected return on the market be? Market expected return ________%
2. You own a portfolio equally invested in a rik-free asset and two stocks. One of the stocks has a beta of 1.13 and the total portfolio is equally as risky as the market.
what must the beta be for the other stock in your portfolio Beta _______
3. A stock has an expected return of 12.9 percent and a beta of 1.15, and the expected return on the market is 11.9 percent.
what must the risk-free rate be? Risk-free rate_________%
Explanation / Answer
1)
Market risk premium (Rp) (Rs-Rf)÷ Here, Risk free rate of return (Rf) 5.90% Beta of the stock () 0.93 Stock expected return (r) 11.80% Market risk premium (Rp) 6.34% (11.80%-5.90%)÷0.93 Required return on market 12.24% 6.34%+5.90%Related Questions
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