Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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P8-34 SECURITY MARKET LINE (SML) Assume that the risk-free rate, RF, is
currently 9% and that the market return, rm, is currently 13%.
a. Draw the security market line (SML) on a set of "nondiversifiable risk (x-
axis)-required return (y-axis)" axes.
b. Calculate and label the market risk premium on the axes in part a.
c. Given the previous data, calculate the required return on asset A having
a beta of 0.80 and asset B having a beta of 1.30.
d. Draw in the betas and required returns from part c for assets A and B on
the axes in part a. Label the risk premium associated with each asset, and
discuss them.
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Transcribed Image Text:P8-34 SECURITY MARKET LINE (SML) Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 13%. a. Draw the security market line (SML) on a set of "nondiversifiable risk (x- axis)-required return (y-axis)" axes. b. Calculate and label the market risk premium on the axes in part a. c. Given the previous data, calculate the required return on asset A having a beta of 0.80 and asset B having a beta of 1.30. d. Draw in the betas and required returns from part c for assets A and B on the axes in part a. Label the risk premium associated with each asset, and discuss them.
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