Stock R has an expected rate of return of 9.5%, stock S has a beta of 1.2, the expected rate of return on the stock market is 11%, and the risk-free rate of return is 3%. According to the CAPM, what is the beta of stock R and what is the expected rate of return for stock S?
Stock R has an expected rate of return of 9.5%, stock S has a beta of 1.2, the expected rate of return on the stock market is 11%, and the risk-free rate of return is 3%. According to the CAPM, what is the beta of stock R and what is the expected rate of return for stock S?
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 17PROB
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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.
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Beta and expected return
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