A share has a beta of 1

Finance Sep 05, 2020

A share has a beta of 1.4. The risk-free rate of return is 3.8% and the expected return on the market is 9.2%. What is the expected return from the share according to the CAPM?

Expert Solution

Computation of Expected Return from the Share according to the CAPM:

Expected Return = Risk-free Rate + Beta*(Expected Return on Market - Risk-free Rate)

= 3.8% + 1.4*(9.2%-3.8%)

= 3.8% + 1.4*5.4%

= 3.8% + 7.56%

Expected Return = 11.36%

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote