Company X has a beta value of 1.3, the risk-free rate of return is 8% and the historical risk premium for shares over the risk-free rate of return has been 5%. Calculate the return expected on shares in X assuming the CAPM applies.

The risk-free return is 5%, Company J has a beta of 1.5 and an expected return of 20%.

Calculate the risk premium for the share index over the risk-free rate assuming J is on the Security Market Line, along with calculating the market return (providing an explanation for the securities market line). What can you comment about the market risk premium in this case? 

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The Capital Asset Pricing Model CAPM is a widelyused finance theory that establishes a linear relati... View the full answer