Assume that the risk-free rate of return is 49% and the market risk premium (Le., Rm- R:) is 896. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 128, then this stock's expected retum should be --- 10.5396 B) 14.24% 23.15% D) 6.5996

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A: Financial management consists of directing, planning, organizing and controlling of financial…

Q: If share C has a beta of 1,3; the risk-free rate is 8% and market risk premium is 7%, what would the…

A: Step 1: Given Value for Calculation Beta = b = 1.3Risk Free rate = rf = 8%market Risk Premium = mrp…

Q: Which of the following statements is TRUE? O A. If the risk-free rate is 1.5% and the market risk…

A: Capital Asset Pricing Model: According to the Capital Asset Pricing Model (CAPM), the link between…

Q: The current appropriate risk-free rate is 6% and the return on the market is 13.5%.   levered beta…

A: Risk Free Rate = 6% Expected Return on market portfolio = 13.5% Beta = 1.29

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

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Q: Assume that the risk-free rate of return is 46 and the market risk premium (Le, Rm-Re) is 8%. If use…

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Q: B. Assume the required return on the market is 7.5% and the risk-free rate is 2.1%. What is the…

A: Given details are : Required return of market (Rm) = 7.5% Risk free rate (Rf) = 2.1% Beta = 0.7 From…

Q: Mansukh

A: The beta of A is 0.45Beta of B is 1The SD of A is 0.28SD of B is 0.21SD of market is 16%.Weight of A…

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A: Using CAPM

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A: The Capital Asset Pricing Model (CAPM) is the model which shows the relationship between the…

Q: Assume that the risk-free rate of return is 4% and the market risk premium (Le., Rm- R:) is 896. If…

A: Financial management consists of directing, planning, organizing and controlling of financial…

Q: Suppose the risk-free rate is 5% and the expected rate of return on the market portfolio is 10%. In…

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

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A: Optimal risky portfolio is the portfolio that earns maximum returns at a minimum level of risk. It…

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Q: How to set-up this problem? Refer to the following example for part i) Risk-free rate of return = 3%…

A:

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A: Expected return = Risk free rate + beta * (market return - risk free rate )

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A: Risk-Free Rate = 3.6%Market Risk Premium = 4%Beta = 1.4

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Q: Assume that the risk-free rate of return is 46 and the market risk premium (ie., Rm- R) is 8%. If…

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A: In this question, we are required to determine the risk-neutral probability.

Q: Suppose the risk-free return is 2.3% and the market portfolio has an expected return of 11.7% and a…

A: Beta = (Correlation with market x Volatility of stock)/ Volatility of marketBeta = (0.045 x 17.3)/…

Q: iven the information below, calculate the reward-to-risk ratio implied by the CAPM pricing model.

A: The risk-reward ratio determines how much reward is there for risk of  every dollar.

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Q: The current appropriate risk-free rate is 6% and the return on the market is 13.5%.Further assume…

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Q: The risk-free rate is 5.6%, the market risk premium is 8.5%, and the stock’s beta is 2.27.  What is…

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A: We will use the CAPM model here. CAPM stands for Capital Asset Pricing Model. This is an important…

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.