6) Stock ABC has a market beta of 1.2. The risk-free rate is 3%, and the market risk premium equals 4%. a. Compute the expected return for stock ABC. b. Assume the true expected return is 6%. What is stock ABC's alpha? (Assume that the CAPM is the correct asset pricing model.) c. Is stock ABC fairly priced, underpriced, or overpriced? Please explain your answer for full credit.

Q: Which of the following statements is TRUE? O A. If the risk-free rate is 1.5% and the market risk…

A: Capital Asset Pricing Model: According to the Capital Asset Pricing Model (CAPM), the link between…

Q: need help with all

A: Risk free rate, Rf = 4%CAPM = E(R) = Rf + Beta x (Rm - Rf) where Rm is the expected return from…

Q: c) Assume that using the Security Market Line (SML) the required rate of return (Ra) on stock A is…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

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A: Required return = Risk free rate + Beta * Market risk premium

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A: In this we have to use capital assets pricing formula.

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A: The Capital Asset Pricing Model (CAPM) is the model which shows the relationship between the…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Capital Asset Pricing Model (CAPM):   CAPM is the method of calculating the expected return on…

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A: Capital Asset Pricing Model: The CAPM explains the relationship between expected return and…

Q: ider an asset with a beta of 1.2, a risk-free rate of 4.3%, and a market return of 12%. What is the…

A: Given, Beta = 1.2 Risk free rate = 4.3% Market return = 12%

Q: Find beta, and determine the required rate of return. The market risk premium is 12%, and the…

A: The beta can be calculated as follows:

Q: Assume that using the Security Market Line (SML) the required rate of return (RA) on stock A is…

A: Solution: As per the security market line following is the Rate of return for stock A and stock B…

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A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

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A: Given details are : Expected rate of return of security A = 0.10 Beta = 1.3 Expected market return =…

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A: Given, Risk free rate = 3% market premium = 4% Beta of stock A = 1.20 Beta of stock B = 0.80

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A: The question is related to the Portfolio Management. The details of two securities are given.…

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A: Beta= 0.9 Expected return= 9% Risk free rate of asset= 2%

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A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

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A: “Since you have posted a question with multiple subparts, we will solve first three subparts for…

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A: Total Risk: The total risk of a stock is measured by its volatility. Therefore, the higher the…

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A: Calculation of ratio of beta of A to beta of B: Answer: The ratio of beta A to beta B is 0.4286

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A: There are various models which shows the relation of return (benefit) and risk. SML is one of them,…

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A: Required rate of return = CAPM = Risk free rate  + Market risk premium * beta

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A: Given: Market rate = 8% Risk free rate = 2% Standard deviation of market portfolio = 15% Standard…

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A: In this problem we require to calculate the beta of the stock and the revised required rate of…

Q: Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found…

A: Calculation of ratio of beta of A to beta of B: Answer: The ratio of beta A to beta B is 0.4286

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A: IF Capital Asset Pricing Model (CAPM) hold good, Expected Return on Stock = Risk-Free rate + (…

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A: Required return of A (Ra) = 6% Required return of B (Rb) = 10% Beta of A = B Beta of B = twice that…

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.