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31 August, 10:28

The rate on T-bills is currently 5%. P. Tree Company stock has a beta of 1.69 and a required rate of return of 15.4%. According to CAPM, determine the return on the market portfolio.

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  1. 31 August, 11:13
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    11.15%

    Explanation:

    Given that

    Risk free rate of return = 5%

    Beta = 1.69

    Expected rate of return = 15.4%

    As per capital asset pricing model

    Expected rate of return = Risk free rate of return + Beta * (Market rate of return - risk free rate of return)

    15.4% = 5% + 1.69 * (Market rate of return - 5%)

    After solving this

    Market rate of return = 11.15%
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