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3. Using the Security Market Line formula, calculate the return on a security with the following...

3. Using the Security Market Line formula, calculate the return on a security with the following characteristics:

  • Risk Free rate(rf) of 8%
  • Return on the market (rm) 15%
  • Beta of .825
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Answer #1

Hi

As per Securiy market line formula

Expected return on security E(r) = rf + beta*(rm-rf)

= 8 + 0.825*(15-8)

= 8 + 0.825*7

   = 13.775%

Thanks

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