The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%....

Question

Question

The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%....

The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%. According to the capital asset pricing model:

a. What is the risk premium on the market?

b. What is the required return on an investment with a beta of 1.6? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)

c. If an investment with a beta of 0.8 offers an expected return of 8.6%, does it have a positive or negative NPV?

d. If the market expects a return of 11.0% from stock X, what is its beta?

business finance

Add a comment Improve this question Transcribed image text

Answer 1

✔ Recommended Answer

Answer #1

a.

Risk Premium = Expected Rate on Market - Risk Free Rate

Risk Premium = 0.11 - 0.04

Risk Premium = 7.00%

b.

Using CAPM Model,

Required Rate = Rf + Beta(Risk Premium)

Required Rate = 0.04 + 1.6(0.07)

Required Rate = 15.20%

c.

Required Rate = 0.04 + 0.80(0.07)

Required Rate = 9.6%

But Expected Rate = 8.6%

So, Investment has negative NPV.

d.

0.11 = 0.04 + Beta(0.07)

Beta = 1

Add a comment

Answer 2

Similar Homework Help Questions

The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%....

The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.6? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.8 offers an expected return of 8.6%, does it have...
The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%....

The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. According to the capital asset pricing model: a. What is the risk premium on the market? b. What is the required return on an investment with a beta of 1.4? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.) c. If an investment with a beta of 0.7 offers an expected return of 9.0%, does it have...
. The Treasury bill rate (i.e. risk-free rate) is 2.5%, and the expected return on the...

. The Treasury bill rate (i.e. risk-free rate) is 2.5%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model: a. What is the risk premium on the market? b. What is the required rate of return on an investment with a beta of 1.15? c. If an investment with a beta of 0.80 offers an expected return of 10.5%, does it have a positive NPV?

The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%....

The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model: d. If the market expects a return of 10.8% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Finance

The Treasury bill rate is 7%, and the expected return on the market portfolio is 12%. According to the capital asset pricing model:a. What is the risk premium on the market?b. What is the required return on an investment with a beta of 1.6? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)c. If an investment with a beta of 0.6 offers an expected return of 8.0%, does it have a positive or negative NPV?d. If the market...
Suppose the risk-free rate is 4.3 percent and the market portfolio has an expected return of...

Suppose the risk-free rate is 4.3 percent and the market portfolio has an expected return of 11 percent. The market portfolio has a variance of .0392. Portfolio Z has a correlation coefficient with the market of .29 and a variance of .3295 According to the capital asset pricing model, what is the expected return on Portfolio Z? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16

Assume the risk-free rate is 7.2% and the expected return on the market portfolio is 9.3%....

Assume the risk-free rate is 7.2% and the expected return on the market portfolio is 9.3%. Use the capital asset pricing model (CAPM) to find the required return for each of the securities in the table here Beta A 1.26 B 0.97 C 0.21 D 1.07 E 0.65 The required return for investment A is _______%. (Round to one decimal place.) The required return for investment B is ______% (Round to one decimal place.) The...
Your estimate of the market risk premium is 5%. The risk-free rate of return is 4%,...

Your estimate of the market risk premium is 5%. The risk-free rate of return is 4%, and General Motors has a beta of 1.6. According to the Capital Asset Pricing Model (CAPM), what is its expected return? O A. 12% O B. 9% O c. 11.4% OD. 10.2%
The expected return on the market portfolio is 20%. The risk-free rate is 12%. The expected...

The expected return on the market portfolio is 20%. The risk-free rate is 12%. The expected return on SDA Corp. common stock is 19%. The beta of SDA Corp. common stock is 1.20. Within the context of the capital asset pricing model, _________. SDA Stock is underpriced SDA stock is fairly priced SDA stock's alpha is 2.6% SDA Corp. stock's alpha is –2.60%

Consider the following information: Portfolio Expected Return Beta Risk-free 7 % 0 Market 12.2 1.0 A...

Consider the following information: Portfolio Expected Return Beta Risk-free 7 % 0 Market 12.2 1.0 A 11.0 1.6 a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.6. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%....

Homework Answers

Add Answer to:
The Treasury bill rate is 4%, and the expected return on the market portfolio is 11%....

Post as a guest

Earn Coins