Purchase Solution

How to calculate - Rate of Return, CAPM

Not what you're looking for?

Ask Custom Question

1. Required rate of return: Stock R has a beta of 1.5, Stock S has a beta of 0.75, the expected rate of return on an average stock is 13 percent, and the risk-free rate of return is 7 percent. By how much does the required return on the riskier stock exceed the required return on the less risky stock?

2. CAPM and required return: Calculate the required rate of return for Manning Enterprises, assuming that investors expect a 3.5 percent rate of inflation in the future. The real risk-free rate is 2.5 percent and the market risk premium is 6.5 percent. Manning has a beta of 1.7, and its realized rate of return averaged 13.5 percent over the past 5 years.

Purchase this Solution

Solution Summary

The solution answers a few questions on finance and in the process explains how to calculate rate of return as well as CAPM.

Solution Preview

1. Return on stock R = risk free rate + beta*(market return - risk free rate)
=7% + 1.5*(13%-7%)=16%

Return ...

Purchase this Solution

Free BrainMass Quizzes
Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations


This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking