hello_19
Feb 5, 2011, 04:07 PM
Ok so I was given this table
Security Beta Expected Return
X 1.50 20%
Y 0.60 16%
Part A was to find Risk Free Rate and I found that out by (20%-Rf)/1.50 = (16%-Rf)/0.60 and solved for Rf and got 13.3% which is correct not onto part B
It says Assume the securites are correctly priced. Based on the CAPM, What is the expected Return on the market(As a %) (Hint: We can use Rf to find Rm by using the formula [E(Ri)= Rf+Beta X (Rm-Rf)] The answer for Part B is suppose to be (17.8%) but I don't know how they got that any help would be useful.
Security Beta Expected Return
X 1.50 20%
Y 0.60 16%
Part A was to find Risk Free Rate and I found that out by (20%-Rf)/1.50 = (16%-Rf)/0.60 and solved for Rf and got 13.3% which is correct not onto part B
It says Assume the securites are correctly priced. Based on the CAPM, What is the expected Return on the market(As a %) (Hint: We can use Rf to find Rm by using the formula [E(Ri)= Rf+Beta X (Rm-Rf)] The answer for Part B is suppose to be (17.8%) but I don't know how they got that any help would be useful.