The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using

Question:

The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using the capital asset pricing model:

a. Draw a graph similar to Figure showing how the expected return varies with beta.

b. What is the risk premium on the market?

c. What is the required return on an investment with a beta of 1.5?

d. If an investment with a beta of .8 offers an expected return of 9.8%, does it have a positive NPV?

e. If the market expects a return of 11.2% from stock X, what is itsbeta?

The Treasury bill rate is 4%, and the expected return

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Principles of Corporate Finance

ISBN: 978-0077404895

10th Edition

Authors: Richard A. Brealey, Stewart C. Myers, Franklin Allen

Question Posted: Dec 31, 2012 10:47 AM

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The Treasury bill rate is 4%, and the expected return on the market portfolio is 12%. Using

Question:

Expected return on investment Security market line Market portfolio Treasury bills beta (β) 1.0

Step by Step Answer:

a b Market risk premium r m r f 012 004 008 80 c Use the s...View the full answer

Principles of Corporate Finance

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