On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor? _______________ Calculate the required return of a portfolio that has $6,000 invested in Stock X and $5,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places. rp = __________% If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?
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.
-
On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?
_______________ -
Calculate the required return of a portfolio that has $6,000 invested in Stock X and $5,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.
rp = __________%
-
If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?
Step by step
Solved in 3 steps with 5 images
