Manipulating CAPM Use the basic epuation for the capital asset model (CAPM) to work each of the followig problems. a. Find the required return for an asset with a beta of 1.63 when the risk-free rate and market return are 5% and 13%, respectively.b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%c. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively.
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.
Manipulating
a. Find the required
b. Find the risk-free rate for a firm with a required return of 14.363% and a beta of 1.07 when the market return is 14%
c. Find the market return for an asset with a required return of 9.045% and a beta of 1.57 when the risk-free rate is 3%
d. Find the beta for an asset with a required return of 10.255% when the risk-free rate and market return are 6% and 9.7%, respectively.
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