Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%....

 

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Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%. a. What is the equation of the SML? (1 mark) b. Suppose a security has a beta of 0.6. According to the CAPM, what is its expected return? (1 mark) c. A security has a volatility of 60% and a correlation with the market portfolio of 25%. According to the CAPM, what is its expected return? (2 marks) d. A security has a volatility of 80% and a correlation with the market portfolio of - 25%. According to the CAPM, what is its expected return? (2 marks) Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%. a. What is the equation of the SML? (1 mark) b. Suppose a security has a beta of 0.6. According to the CAPM, what is its expected return? (1 mark) c. A security has a volatility of 60% and a correlation with the market portfolio of 25%. According to the CAPM, what is its expected return? (2 marks) d. A security has a volatility of 80% and a correlation with the market portfolio of - 25%. According to the CAPM, what is its expected return? (2 marks)

Answer rating: 100% (QA)

Capital Asset Pricing Model CAPM Calculations a Equation of the Security Market Line SML The SML relates the expected return Er of an asset to its bet... View the full answer