1) Stock X has a beta of 1.6. If the risk free rate is 3.4 percent and the market risk premium for the average share of stock is 13.4 percent, what is the expected return for Stock X under the Capital Asset Pricing Model asssumptions? (show your answer in decimal form: 12.34% would be entered as 0.1234)
2) Joe bought ABC stock on January 10th for $195.79 per share. The stock paid a dividend of $1.49 in March and another dividend of $1.55 in June. He sold it in July for $193.67. What was Joe's holding period return? Show your answer in decimal form to four places.
Ans 1) 0.2484
| CAPM Return = | Risk free Return + (Market Return - Risk free return)* Beta |
| CAPM Return = | Risk free Return + (Market Risk Premium)* Beta |
| CAPM Return = | 3.4% + 13.4% * 1.6 |
| CAPM Return = | 24.84% |
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