ased on five years of monthly data, you derive the following information for the companies listed: Company SDi rm Padma 11.10% 0.82 Meghna 12.60% 0.63 Jamuna 6.60% 0.45 Karnafully 9.70% 0.70 SD on Market 7.60% 1.00 Assuming a risk-free rate of 9% and expected return for the market portfolio is 16 % compute the expected (required) return for all the stocks.
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.
Based on five years of monthly data, you derive the following information for
the companies listed:
| Company | SDi | rm |
| Padma | 11.10% | 0.82 |
| Meghna | 12.60% | 0.63 |
| Jamuna | 6.60% | 0.45 |
| Karnafully | 9.70% | 0.70 |
| SD on Market | 7.60% | 1.00 |
Assuming a risk-free rate of 9% and expected return for the market portfolio is 16 % compute the expected (required) return for all the stocks.
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