QUESTION 1 Consider a firm with a beta of 1.27. If the market risk premium is...

Question

Question

Answer 1

Answer #1

Using the CAPM model,

ER_i = R_f + β(ER_m - R_f)

where,

ER_i = Expected return
R_f = Risk-free rate = 1.97%
β = Beta of the investment = 1.27
ER_m - R_f = Market Risk Premium = 7.67%

=> ER_i = 0.0197 + 1.27*0.0767 = 0.1171

Answer 2

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