Homework Answers
All four assumption are applicable for CAPM model
(Rm - Rf) represents the Market risk premium.
| bi | Calculation | Expected return on stock |
| -0.5 | =2%+(-0.5*6%) | -1.00% |
| 0.3 | =2%+(0.3*6%) | 3.80% |
| 1 | =2%+(1*6%) | 8.00% |
| 3 | =2%+(3*6%) | 20.00% |
| When the coefficient bi > 1 The stock is more volatile than market | ||
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Capital Asset Pricing model
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