The rate on six-month T-bills is currently 5%. Andvark 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.
A) 11.15%
B) 6.15%
C) 17.07%
D) 14.11%
You are going to invest all of your funds in one of three projects with the following distribution of possible returns:
Project 1 Project 2
Standard Deviation 12% Standard Deviation 19.5%
Probability Return Probability Return
50% Chance 20% 30% Chance 30%
50% Chance -4% 40% Chance 10%
30% Chance -20%
Project 3
Standard Deviation 12%
Probability Return
10% Chance 30%
40% Chance 15%
40% Chance 10%
10% Chance -21%
If you are a risk-averse investor, which one should you choose?
A) Project 1
B) Project 2
C) Project 3
The expected return on the market portfolio is currently 11%. Battmobile Corporation stockholders require a rate of return of 23.0%, and the stock has a beta of 2.5. According to CAPM, determine the risk-free rate.
A) 17.5%
B) 2.75%
C) 3.0%
D) 9.2%
Hefty stock has a beta of 1.2. If the risk-free rate is 7% and the market risk premium is 6.5%, what is the required rate of return on Hefty?
A) 14.8%
B) 14.4%
C) 12.4%
D) 13.5%
The market risk premium is measured by
A) beta.
B) market return less risk-free rate.
C) T-bill rate.
D) standard deviation.
Marjen stock has a required return of 20%. The expected market return is 15%, and the beta of Marjen's stock is 1.5. Calculate the risk-free rate.
A) 4%
B) 5%
C) 6%
D) 7%
