Question: Case Risk-free rate % Market return % Beta A 5 8 1.3 B 8 13 0.9 C 9 12 -0.2 D 10 15 1.0 E
| Case | Risk-free rate % | Market return % | Beta |
| A | 5 | 8 | 1.3 |
| B | 8 | 13 | 0.9 |
| C | 9 | 12 | -0.2 |
| D | 10 | 15 | 1.0 |
| E | 6 | 10 | 0.6 |
a) For each of the cases shown in the following table, use the capital asset pricing model (CAPM) to find the required return and explain your answer
b) Use the basic equation for the CAPM to rework each of the following problems for above case.
Case A) Find the required return for an asset with a beta of 0.9 when the risk-free rate and market return are 8% and 12% respectively.
Case B) Find the risk-free rate for a firm with a required return of 15% and a beta of 1.25 when the market return is 14%.
Case C) Find the market return for an asset with a required return of 16% and a beta of 1.1 when the risk-free rate is 9%.
Case D) Find the beta for an asset with a required return of 15% when the risk-free rate and market return are 10% and 12.5% respectively.
c) Describe the advantages of using CAPM model to determine the expected return
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
