Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of...

Question

Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems.

a. Find the required return for an asset with a beta of 0.90 when the risk-free rate and market return are 8% and 12%, respectively.

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%.

c. Find the market return for an asset with a required return of 16% and a beta of 1.10 when the risk-free rate is 9%.

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.

Hari Kiran · Accepted Answer

Sheet1
	a
		Risk Free Rate 	8%
		Market Return	12%
		Risk Premium	(Beta * (Rate of Return on Market - Risk Free Rate of Return)
			 = 0.90*4%
			3.60%
		Required Rate of Return 	 = Risk Free Rate of Return + Risk Premium
			 =0.08+0.036
			0.116
		Required Rate of Return 	11.60%
		Required Rate of Return is 11.60%.
	b	Required Rate of Return 	15%
		Risk Free Rate 	?
		Market Return	14%
		Beta	1.

Manipulating CAPM Use the basic equation for the capital asset pricing model (CAPM) to work each of the following problems. a. Find the required return for an asset with a beta of 0.90 when the...

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