# Question: Suppose you observe the following situation Assume these securities are correctly

Suppose you observe the following situation:

Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?

Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?

**View Solution:**## Answer to relevant Questions

There are three securities in the market. The following chart shows their possible payoffs. a. What is the expected return and standard deviation of each security? b. What are the covariances and correlations between the ...Based on the following information, calculate the expected return and standard deviation for the two stocks. An all-equity firm is considering the following projects: The T-bill rate is 5 percent, and the expected return on the market is 11 percent. a. Which projects have a higher expected return than the firm’s 11 percent cost ...Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $275,000 before interest per year in perpetuity, with each company distributing all its earnings as ...Assume a firm’s debt is risk-free, so that the cost of debt equals the risk-free rate, Rf . Define βA as the firm’s asset beta, that is, the systematic risk of the firm’s assets. Define βS to be the beta of the ...Post your question