3 Risk and Return 1. What is the beta of a portfolio with the expected return of 18%, if the risk-free rate is 6% and the risk premium of market portfolio is 8%? r= (rm-re) x B +Ff r= (0.08-0.06) x 0.18 +0.06 r= 0.0636 Therefore, the beta of this portfolio is 0.0636

3 Risk and Return 1. What is the beta of a portfolio with the expected return of 18%, if the risk-free rate is 6% and the risk premium of market portfolio is 8%? r= (rm-re) x B +Ff r= (0.08-0.06) x 0.18 +0.06 r= 0.0636 Therefore, the beta of this portfolio is 0.0636

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

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3 Risk and Return
1. What is the beta of a portfolio with the expected return of 18%, if the risk-free rate is 6% and the
risk premium of market portfolio is 8%?
r = (Fm -rf) x B + [f
= (0.08-0.06) x 0.18 + 0.06
r= 0.0636. Therefore, the beta of this portfolio
is 0.0636
Joat is
Sour

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