calculate the level of systematic risk of Company A if the expected return is 15% and...
calculate the level of systematic risk of Company A if the expected return is 15% and 10 year government bond yield 4.5%
Homework Answers
the CAPM equation is as follows:
Er = Rf + β(Rm – Rf)
where,
- Er: Expected Return of the Security.
- Rf: Risk-Free Rate generally the rate of government security (government bonds).
- Rm: Return of the market portfolio.
- β: Systematic risk coefficient of security.
15% = 4.5% + β(10% - 4.5%)
10.5% = β * 5.5%
β = 1.9091
Note- since the value of Rm is not given, hence it is assumed as 10%
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