The risk-free rate of return is 7%. The average market return is 11%. (a) What will be the return expected from a share whose Beta factor is 0.9? (b) What would be the share's expected value if it is expected to earn an annual dividend of 5.3c, with no capital growth?
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.
The risk-free
(a) What will be the return expected from a share whose Beta factor is 0.9?
(b) What would be the share's expected value if it is expected to earn an annual dividend of 5.3c, with no capital growth?
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