The return on the Tarheel Corporation stock is expected to be 14 percent with a standard deviation of 10 percent. The beta of Tarheel is 0.7. The risk-free rate is 9 percent, and the expected return on the market portfolio is 16 percent. What is the probability that an investor in Tarheel will earn a rate of return less than the required rate of return? Assume that returns are normally distributed. Use Table V to answer the question.
Round z value in intermediate calculation to two decimal places.
Round your answer to the nearest whole number.
Homework Answers
Hello
Using CAPM, we will calculate the required rate of return
Ke = 9% + 0.7(16% - 9%) = 13.9%
Hence,
Thanks!
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