Ask Question
9 May, 14:45

Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for the coming year is 4.0 percent, while the expected market risk premium is 16.0 percent. Given this information, determine the required rate of return for Security J for the coming year.

+2
Answers (1)
  1. 9 May, 16:21
    0
    the answer is 7%

    Explanation:

    If we estimate the beta as a proportion between the expected risk - free rate and the expected market value, we obtain 4%/16%=25%

    b=0.25 r=?

    r_m=0.16

    r_ref=0.04

    then we use the CAPM Model

    r=r_ref + b (r_m-r_ref)

    r = 0.04+0.25 * (0.16-0.04) = 0.07
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Assume that you are given the following historical returns for the Market and Security J. Also assume that the expected risk-free rate for ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers