An investor has a stock investment with a beta of 1.25. He was expecting to have the return on his stock at 18% when the market risk premium was 8%. If the revised market risk premium is 10%, what will be the new expected return on investment?*

Q: A stock has a required return of 13%; the risk- free rate is 5%, and the market risk premium is 4%.…

A: We have two parts in this question : In part (a) we need to calculate Stock's Beta . In part (b) we…

Q: A stock has a beta of 1.09, the expected return on the market is 10.3 percent, and the risk-free…

A: Given Beta is 1.09 Expected return on market is 10.3% Risk free rate is 4.8%

Q: Assume that expected return of the stock A in your portfolio is 14.6%. The risk premium on the…

A: CAPM is a financial model which shows the relation between risk and expected return of the…

Q: You have bought a stock for a $100. You are expecting to get a return of 10% while the volatility of…

A: Calculation of the stock price range (Upper bound and Lower Bound) is shown below: Hence, the price…

Q: Stock R has a beta of 1.5, Stock S has a beta of 0.95, the required return on an average stock is…

A: Required rate of return is defined as the minimum return regarding an investor, which is used to…

Q: Assume that the risk-free rate is 6.5% and the required return on the market is 10%. What is the…

A: Risk free rate (Rf) = 0.065 Market return (Rm) = 0.10 Beta (b) = 3 Required rate of return = ?…

Q: Investors expect the market rate of return this year to be 16.50%. The expected rate of return on a…

A: In the given case, we have provided the expected market return rate, beta and the expected…

Q: A stock is currently selling for $90.98 and is expected to sell for $108.98 in 1 year. If the…

A: The return from an investment until it has been held with the investors is often referred to as the…

Q: You are a long-term investor, having a portfolio of stocks X, Y and Z. Stocks betas are 1.01, 0.93…

A: The question is related to Portfolio Management. The Portfolio beta is calculated with the help of…

Q: You are holding a stock that has a beta of 1.86 and is currently in equilibrium. The required return…

A: Current Market Return = 10.20%Required Return on Stock = 13.01%Beta = 1.86Risk Free Rate = ?New…

Q: Using CAPM A stock has an expected return of 13 percent, the risk-free rate is 4.5 percent, and the…

A: Given details are : Expected return = 13% Risk free rate = 4.5% Market risk premium = 7% We need to…

Q: You are thinking of buying a stock priced at $100 per share. Assume that the risk-free rate is about…

A: CAPM model is capital asset pricing model which is used to calculate required return. It takes into…

Q: A stock has an expected return of 10% and a beta of .9. If the risk-free rate is 4%, what is the…

A: The beta of the stock can be calculated as per the CAPM equation

Q: Suppose that the risk-free rate is 3% and the expected return on the market portfolio is 6%. A…

A: To determine if the stock is overpriced or underpriced according to the Capital Asset Pricing Model…

Q: A stock you are holding has a beta of 2.0 and the stock is currently in equilibrium. The required…

A: Given data; bets of stock = 2.0 Required rate of return on stock = 15% Required rate of return on…

Q: A stock has an expected return of 9.10%, the risk-free rate is 8.00% and the return on the market is…

A: Step 1: The calculation of the stock's beta AB1Expected return (r )9.10%2Risk-free rate…

Q: Target Corporation stock has a beta of 1.25, and Walmart stock has a beta of 0.5. If the expected…

A: The expected return for each stock is calculated using following CAPM(Capital asset pricing model)…

Q: You are considering adding Gamma stock to your portfolio. What is the required return on the stock…

A: Required return: It is the return that is accepted by an investor for holding a stock of a…

Q: Suppose Intel stock has a beta of 0.73, whereas Boeing stock has a beta of 1.3. If the risk-free…

A: As per guidelines we are supposed to answer only 3 sup-parts Expected return on each stock is…

Q: A stock has a beta of 1.9. The risk-free rate is 2%. Assume that the CAPM holds. What is the…

A: According to CAPM (Capital asset pricing model) ,k =Rf+[ b*(Rm-Rf)]wherek= expected return for the…

Q: A stock has an expected return of 13.87 percent. The beta of the stock is 1.7 and the risk-free rate…

A: Expected Return = r = 13.87%Beta = b = 1.7Risk free rate = rf = 5%Market Risk Premium = mrp = ?

Q: A stock has a beta of 1.38. The risk free rate is 0.817% and the market risk premium is 5%. What is…

A: Solution:- Capital Asset Pricing Model (CAPM) is the model which helps to compute the fair return on…

Q: A stock has a beta of 1.16, the expected return on the market is 11 percent, and the risk-free rate…

A: To calculate the expected return on this stock we will use the below formula   Expected return =…

Q: Suppose Intel stock has a beta of 0.84, whereas Boeing stock has a beta of 1.29. If the risk-free…

A: As per guideline, if more than 3 sub parts asked in a question. I can solve only the first 3…

Q: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and…

A: Information given in ques is as follows: Expected return on Stock = 16.2% Beta = 1.2 Risk free rate…

Q: What is the expected return on a stock with a beta of 1.40, if the riskless rate is 4% and the…

A: In this question we need to find expected return according to CAPM. According to CAPM: Expected rate…

Q: You are thinking of buying a stock priced at $98 per share. Assume that the risk-free rate is about…

A: Holding period return = Dividend paid + ( Price at year 1 - Price at year 0 ) / Price at year 0

Q: a. What is the market risk premium? Show your work. b. What is the cost of equity for XYZ? Show your…

A: Please note that only 1 question can be solved under the Answering Guidelines. The solution to stock…

Q: Suppose Intel stock has a beta of 0.88, whereas Boeing stock has a beta of 1.18. If the risk-free…

A: CAPM stands for capital asset pricing model. This model describes the relationship between expected…

Q: a. Calculate the average rate of return for each stock during the 5-year period. b. Suppose you had…

A: d)  To determine which investment (Stock X, Stock Y, or the portfolio) is preferable for a…

Q: When the return on the market portfolio goes up by 5%, the return on Stock A goes up on average by…

A: Return is the basic factor which affects the investor’s decision. CAPM is the tool which is used to…

Q: ng a stock that has a beta of 1.2. The risk-free rate is 5% and you estimate the market risk premium…

A: We need to compute the expected return as per capital asset pricing model. If expected return as per…

Q: A stock has an expected return of 12.69 percent and its reward-to-risk ratio is 7.6 percent. If the…

A: In this question, we are required to determine the value of beta.

Q: You own a portfolio that has $1,800 invested in Stock A and $2,900 invested in Stock B. If the…

A: Excel Spreadsheet:  Excel Workings:

Q: Stock R has a beta of 2.0, Stock S has a beta of 0.75, the required return on an average stock is…

A: Given, The Beta of Stock R is 2 The beta of stock S is 0.75 Average stock return is 14% Risk free…

Q: Assume that the stock market will be decreasing for the year and you are interested in investing in…

A: Beta of stock indicates how much stock will move if market is moving.Positive beta indicates that…

Q: For a stock that has a beta of 1.4 and an expected return of 13%, whilst the expected risk premium…

A: Formulas: Expected return = Risk free rate +( Beta*Market risk premium) Expected return = Risk free…

Q: A stock has a beta of 1.68, the expected return on the market is 14.72, and the risk-free rate is…

A: As per CAPM formula Expected return on stock = Risk free return + Beta*(Market return-Risk free…

Q: A stock has a beta of 1.15, the expected return on the market is 11% and risk free rate is 3%. What…

A: According to Capital asset pricing model ( CAPM),Re = Rf +[ beta × ( Rm - Rf)]Where,Re = expected…

Q: What is the required rate of return on a stock with a beta of 1.2, when the risk-free rate is 3.6%…

A: Risk-free rate = 3.6%Market return = 14.4%Beta = 1.2The required rate of return on a stock is a…

Q: pect the stock to have a retu eturn according to the CAP the stock? (Select the bes

A: The expected return can be calculated as follows : Calculations for above :

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.