Question: The current expected return on the Tesla stock is 43%, the riskless rate of interest is 2%, the return on the market portfolio is 15%

The current expected return on the Tesla stock is 43%, the riskless rate of interest is 2%, the return on the market portfolio is 15% and the standard deviation of the market portfolio is 20%

a. According to CAPM, what is the current beta of Tesla?

b. If the current standard deviation of returns on Tesla is 60%, what is the correlation coefficient between returns on Tesla and returns on the market portfolio?

c. What will be the beta of Tesla if the covariance of its returns with the market portfolio returns doubles?

d. According to CAPM, what is the new expected return on Tesla?

e. Please explain why investors pay higher return for Tesla when its covariance with the market portfolio doubles (one short paragraph).

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

The current expected return on the ABC stock is 10%, the riskless rate of interest is 2%, and the return on the market portfolio is 8% and the standard deviation of returns on the market portfolio is...

do not use excel. plz show work Question 4 The current expected return on the ABC stock is 10%, the riskless rate of interest is 2%, and the return on the market portfolio is 8% and the standard...

Question 4 The current expected return on the ABC stock is 10%, the riskless rate of interest is 2%, and the return on the market portfolio is 8% and the standard deviation of returns on the market...

Question 3 The beta for Netflix's stock is 0.9, the current risk-free rate (r 5 points Save Answer (r) is 2% and the current expected return on the market portfolio (E(r)) is 7%. If the expected...

They build off each other in order D The next five cestions are interconnected. Assume that CAPM holds. You are given the following Information about the riskless rate stock 2 and the market...

d) Given the betas of these securities in part (c), your manager also wants you to calculate the required rate of return on these three stocks and determine the underpriced, overpriced, and...

Use the following case to answer questions 57 to 59. Assume that an investor holds GHS 2,000 in an equity fund indexed to the GSE Composite Index and plans to temporarily hedge her exposure to risk...

1. Stock A has the following returns for various states of the economy: State of the Economy Probability Stock A's Return Recession 10% -30% Below Average 20% -5% Average 40% 8% Above Average 25% 25%...

An apple weighs 80 g and has a volume of 100 cm3 in a refrigerator at 8oC. What is the apple density? List three intensive and two extensive properties of the apple.

What is enthalpy of combustion? How does it differ from the enthalpy of reaction?

4 (10 points) What is a correct statement? Question 4 options: Interest rate risk is the chance that interest rates may increase, decreasing the value of bank assets. Credit risk is the chance that a...

A grocery store purchases fresh everyday from its suppliers it ordered 1 0 0 lb of fish each day but the actual weight received varies from day to day with an average range of 6 lb over the past 5...

4.24 Your school Ping-Pong team is not performing very well this season. After some rough calculations, you found out that your teams probability of winning a game is about 0.45. A fellow team member...

4.25 A professor teaches a large class and has scheduled an examination for 7:00 p.m. in a different classroom. She estimates the probabilities in the table for the number of students who will call...

4.23 A student needs to know details of a class assignment that is due the next day and decides to call fellow class members for this information. She believes that for any particular call, the...