State whether each of the following is inconsistent with the CAPM. A security with only diversifiable risk has an expected return that exceeds the risk-free interest rate. A security with a beta of 1 had a return last year of 15% when the market had a return of 9% Small stocks with a beta of 1.5 tend to have higher returns on average than large stocks with a beta of 1.5.

Q: During the coming year, the market risk premium (rm− rf), is expected to remain the same, while the…

A: The question is based on the concept of Financial analysis

Q: (Expected rate of return and risk) Syntex, Inc. is considering an investment in one of two common…

A: Stock AStock BProbabilityReturnProbabilityReturn0.3513%0.15-6%0.3014%0.357%0.3518%0.3516%0.1520%

Q: XYZ  has a beta of 1.5. The annualized market return yesterday was 14%, and the risk-free rate is…

A: We need to calculate the expected rate of return using CAPM below Expected rate of return =Risk free…

Q: Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security…

A: Returns of the market, and various securities in various states are known. Based on the information,…

Q: Assume that the risk-free rate is 5%. Which of the following statements is CORRECT? a. If a…

A: The objective of the question is to identify the correct statement about the relationship between a…

Q: d. Suppose a new stock, C, with f = 18% and b = 2.0, becomes avail- able. Is this stock in…

A: Beta is calculated by slope function in excel with market return as known x and stock return as…

Q: Stock Z is currently priced using an expected return of 12.5%. It has a beta of 1.25, and the…

A: As per CAPM, Required return = Rf + beta ( Rm - Rf) where Rf = Risk free rate of return  RM = Market…

Q: Assume that the CAPM is an appropriate model for estimating the required return on a stock. The…

A: Market return (Rm) = 8% Risk free rate (Rf) = 3% Beta of Targette = 1.2 Expected return of Targette…

Q: Suppose you observe the following situation: Security Beta Expected Return Pete Corp. 1.70 0.180…

A: Pete corp:Beta = 1.70Expected Return = 0.180Repete Co. :Beta = 1.39Expected return = 0.153

Q: Stock Y has a beta of 1.30 and an expected return of 13.0%. Stock Z has a beta of .75 and an…

A: We will calculate the expected return using the Capital Asset Pricing Method and then compare with…

Q: Are the following true or false? Explain. Stocks with a beta of zero offer an expected rate of…

A: A stock's expected percentage of return is measured using a model known as the CAPM which considers…

Q: Stock Y has a beta of 1.50 and an expected return of 14.2 percent. Stock Z has a beta of .85 and an…

A: CAPM is the capital asset pricing model and is used to find the required return using the following…

Q: 7. The utility score a typical investor would assign to a particular portfolio, other things equal,…

A: The utility score of an investor depends on return and total risk. The Capital Market Line shows the…

Q: Assume the risk-free rate is 5% and the market return is 12%. If inflation increases in the market…

A: A line that is drawn on a chart to depict the capital asset pricing model graphically is called the…

Q: The S&P500 has an expected return of 15.8%. The riskless rate is 2.7% and XYZ's beta is 1.3. What…

A: In the following question we are required to calculate the expected return on XYZ stock according to…

Q: The standard deviation of returns of a particular stock is 43% and that of the market is 35%. The…

A: Beta measures the market risk of any stock. A beta can be negative, positive, 0 or 1. A beta of 1…

Q: Complete the table with the alphas below: (Round to one decimal place.) Expected Return Volatility…

A: According to CAPM approach, k = Rf + beta (Rm - Rf) Where , k = rate of return Rm =  market return…

Q: (i) Potpuri Inc Stock has a beta of 1.7 and an expected return of 16.7% under CAPM. What is the…

A: Capital Asset Pricing Model (CAPM) is a financial approach that helps to determine the expected…

Q: For the upcoming year, the risk-free rate is 2 percent, and the expected return to the market is 7…

A: Given the following informationThe risk-free rate is 2%The expected return on the market is 20%The…

Q: The risk-free rate is 7% and the expected rate of return on the market portfolio is 11%. a.…

A: > Given that;> Risk free rate is 7%> Market return is 11%> The value of beta is 1.92

Q: You are using the CAPM to calculate a fair return for Stardust Inc. common stock. The market has a…

A: Beta is the measure of the systematic risk of a stock. It measures the volatility of the stock with…

Q: Suppose the common stock of United Industries has a beta of 1.18 and an expected return of 11.9…

A: Market risk premium= Rm-Rfwhere,Rm= market returnRf= Risk-free rate

Q: ssume that the CAPM is a good description of stock price returns. The market expected return is 7%…

A: Alpha shows the risk adjusted perfomance of the portfolio it is measured as the how much is the rate…

Q: Which of the following statements is CORRECT? a. The slope of the Security Market Line is beta.…

A: The objective of the question is to identify the correct statement among the given options related…

Q: Company A has a beta of 0.9 , while Company B's beta is 1.4 . The market risk premium is 13.78 %,…

A: The Capital Asset Pricing Model (CAPM) illustrates the relationship between systematic risk, or the…

Q: Suppose that there are many stocks in the security market and that the characteristics of stocks A…

A: The expected return refers to the average profits that the investment provides. It is used to…

Q: The risk-free rate of return is currently 0.03, whereas the market risk premium is 0.04. If the beta…

A: Following details are given in the question: Risk free rate of return = 0.03 = 3% Market Risk…

Q: Stock A has a beta coefficient = 1.12. calculate the expected rate of return of the stock A given…

A: Solution:- Capital Asset Pricing Model (CAPM) is the model to calculate expected return on a stock.…

Q: Suppose intel stock has a beta of 0.80, whereas Boeing stock has a beta of 1.15. If the risk-free…

A: Intel Beta = ib = 0.89 Boeing Beta = bb = 1.15 Risk free rate = rf = 3.1% Market return = rm = 10.1%

Q: Suppose that the CAPM is a good model of risk in the stock market. Suppose also that the average…

A: Excess return on stocks = 10%Risk-free rate = 1%

Q: Security is fairly priced and has an expected rate of return of 0.13. The market expected rate of…

A: The capital asset pricing model is the model of required return valuation which calculates the…

Q: A stock as a beta of 0.9 and the market expects to return 12.0%. If the risk free rate is 2.0%, what…

A: CAPM is the capital assets pricing model used to calculate the required rate of return based on the…

Q: Suppose the market portfolio has an expected return of 9% and a volatility of 18.5%. YMH stock…

A: Sharpe ratio shows the risk adjusted performance of the stock based on risk free rate and volatility…

Q: A stock has an expected return of 13.4 percent and a beta of 1.15, and the expected return on the…

A: The Capital Asset Pricing Model (CAPM) is a financial model that establishes a relationship between…

Q: Using CAPM to determine the expected rate of return for risky assets, consider the following example…

A: The objective of the question is to calculate the expected rate of return for five different stocks…

Q: Assume that the CAPM is a good description of stock price returns. The market expected return is 7%…

A: To calculate the alpha of each stock, use the Capital Asset Pricing Model (CAPM). The formula for…

Q: Mulherin's stock has a beta of 1.34, its required return is 8.33%, and the risk-free rate is 2.30%.…

A: Beta = b = 1.34Required Return = r = 8.33%Risk free rate = rf = 2.30%

Q: You are trying to figure out the risk-free rate estimate.  Here is information about a stock's CAPM…

A: As per the CAPM model return can be calculated as under. Stock Return = Risk free Return + (Return…

Q: We know the following expected returns for stocks A and B, given the different states of the…

A: 1. Expected return is computed by following formula-Expected return = WhereRi = return of stockPi =…

Q: cing Model, this security is

A: calculate the expected return of stock AAPL using the Capital Asset Pricing Model (CAPM). The CAPM…

Q: a. Calculate the change in retur Security A's change in return w Data table Security A (Click on the…

A: Security's Change in return = Change in Market Return * Beta of the security

Q: Which of the following statements is CORRECT? (Assume that the risk-free rate is a constant.) a.…

A: The objective of the question is to identify the correct statement about the effect of a change in…

Q: Suppose that during the coming year, the risk free rate, rRF, is expected to remain the same, while…

A: The objective of the question is to understand the impact of a decrease in the market risk premium…

Q: A stock has an expected return of 11.25 percent, a beta of 0.82, and the expected return on the…

A: Capital asset pricing model is used to compute the expected return from a stock: Here, Expected…

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.