If the expected market return is 8%, the expected return and beta of a healthcare stock is 8% and 1 respectively, what is the risk-free rate according to the capital asset pricing model? O 0% ○ 2% O-1% ○ 1%
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- Compute the expected rate of return on investment i given the followinginformation: Rf = 8%; E(RM) = 14%; βi = 1.0.b. Recalculate the required rate of return assuming βi is 1.8.25. a. Compute the expected rate of return on investment i given the followinginformation: the market risk premium is 5%; Rf = 6%; βi = 1.2.b. Compute E(RM)Security A, standard deviation = 25% beta = 1.5 Security B, standard deviation = 40% beta = 1/3 If both securities have the same return, which should I invest in? Explain using knowledge of Capital Asset Pricing ModelFor each of the cases shown in the following table, use the capital asset pricing model (CAPM) to find the required return and explain your answer. Case Risk-free rate Market return Beta (%) (%) 8 A 5 1.3 В 8. 13 0.9 C 9 12 -0.2 D 10 15 1.0 E 10 0.6
- If the risk-free rate is 10.2% and the market risk premium is 4.4%, what is the required return for the market? a. 5.8% b. 4.4% C. 14.6% d. 10.2%For an investment in a stock, the probability of the return being -10.0% is 0.3, 10.0% is 0.4, and 30.0% is 0.3. Given the probability distributions, what is the expected rate of return for the investment?Choices:A. 10.00%B. 9.50%C. 15.00%D. 12.50%E. 13.00%APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6%, the expected return on the first factor (r1) is 12%, and the expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9, what is Crisp’s required return?
- Asset A has an expected return of 10%. The expected market return is 14% and the risk-free rate is 5%. What is asset A's beta? Select one: O a. 0.88 O b.0.67 O C. 0.55 O d.o.33 O e. 1.15a. Compute the expected rate of return on investment i given the following information: the market risk premium is 5%; Rf = 6%; βi = 1.2. b. Compute E(RM).Suppose that we have this information about the current market return and the risk-free return: • The market return is 12%, the risk free return is 8%, and the ẞ is 1.4. Calculate the cost of equity.
- 4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premium9. What return would you expect if the risk-free rate of return was 5 per cent, the beta risk is 1.5, and the historical risk premium has been 6 per cent? (Base you calculation on the capital asset pricing model.) A) 14% B) 13.5% C) 11% D) 16.5%The risk-free rate is currently 3.3%, and the market return is 14.8%. Assume you are considering the following investments: Investment Beta A 1.54 B 1.16 C 0.51 D 0.11 E 2.14 . a. Which investment is most risky? Least risky? b. Use the capital asset pricing model (CAPM) to find the required return on each of the investments. c. Find the security market line (SML), using your findings in part b. d. On the basis of your findings in part c, what relationship exists between risk and return? Explain.