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Capital Asset Pricing Model.

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The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here.

a. Calculate the expected returns on the stock market and on Chicago Gear stock.
b. What is Chicago Gear's beta?
c. What is Chicago Gear's required return according to the CAPM?

State of the Market Probability that State Occurs Stock Market ChicagoGear

Stagnant 0.20 (10%) (15%)
Slow growth 0.35 10 15
Average growth 0.30 15 25
Rapid growth 0.15 25 35

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Solution Summary

The problem deals with major finance problem including beta, required rate of return etc.

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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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