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Homework answers / question archive / Assume that the expected return for Canyon Inc
Assume that the expected return for Canyon Inc. (CY) is being calculated using the CAPM. CY's beta is -.13, the risk-free return is 4%, and the expected market return is 6%. What is the expected return for CY?
Computation of Expected Return using CAPM:
Expected return = Risk-free Rate+Beta*Market Risk Premium
Here,
Market RIsk Premium = Expected Market Return - Risk-free Rate = 6%-4% = 2%
Expected Return = 4% + (-0.13)*2% = 3.74%
So, Expected Return for CY is 3.74%.
