Question | |||
Information in the Question | |||
Security | Beta | Risk-free rate | Expected market return |
Stock 1 | 1.80 | 0.02 | 0.06 |
Stock 2 | 1.20 | 0.035 | 0.06 |
Stock 3 | 0.40 | 0.015 | 0.06 |
Capital Asset Pricing Model - CAPM Formula and Calculation |
Expected return on Security = Risk-free rate + [Beta (Expected market return - Risk-free rate)] |
Security | Beta | Risk-free rate | Expected market return | Expected return (Formula) | Expected return (Value) |
Stock 1 | 1.80 | 0.02 | 0.06 | =0.02+ [1.80(0.06-0.02)] | 0.092 |
Stock 2 | 1.20 | 0.035 | 0.06 | =0.035+ [1.20(0.06-0.035)] | 0.065 |
Stock 3 | 0.40 | 0.015 | 0.06 | =0.015+ [1.20(0.06-0.015)] | 0.033 |
Security | Expected return (Value) |
Stock 1 | 0.092 |
Stock 2 | 0.065 |
Stock 3 | 0.033 |
Intro The table below shows information for 3 stocks. Security Beta Risk-free rate Expected market return...
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