Let r be the expected return of stock i, rRE represent the risk-free rate, b represent the Beta of a stock, and rM represent the market return. Assume that the market is in equilibrium, with the required rate of returns equal to expected returns. According to the video, which equation most closely describes the relationship between required returns, beta, and the market risk premium? On= TRF + On= TRF +bx (rM + TRF) On= TRF -bx (rM – TRF) On= TRF + bx (rm – TRF) Hint: Recall that because the market is in equilibrium, the required rate of return is equal to the expected rate of return for each stock. Using the equation you just identified, you can solve for the market risk premium which, in this case, equals approximately Consider Fund P, which has one third of its funds invested in each of stock
Let r be the expected return of stock i, rRE represent the risk-free rate, b represent the Beta of a stock, and rM represent the market return. Assume that the market is in equilibrium, with the required rate of returns equal to expected returns. According to the video, which equation most closely describes the relationship between required returns, beta, and the market risk premium? On= TRF + On= TRF +bx (rM + TRF) On= TRF -bx (rM – TRF) On= TRF + bx (rm – TRF) Hint: Recall that because the market is in equilibrium, the required rate of return is equal to the expected rate of return for each stock. Using the equation you just identified, you can solve for the market risk premium which, in this case, equals approximately Consider Fund P, which has one third of its funds invested in each of stock
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 15P
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