Homework Answers
1.A . Firstly we will need to find out the beta according to the Capital Asset pricing model.
Expected rate of return= risk free rate+(beta*market risk premium)
14= 6+(beta*8.5)
BETA= (8/8.5)=.9411
Expected price next year= (50*114%)=$57
B. if the correlation coefficient with the market portfolio will be doubling it will mean that the beta will be doubling and then the price of the share can be as follows-
Expected rate of return= 6+(2*.9411*8.5)
= 22%
Expected price next year=( 50*122%)= $61
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