Purchase Solution

# CAPM, Expected Return, Risk and Return

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CAPM and EXPECTED RETURN: The following table shows betas for several companies. How do I calculate each stock's expected rate of return using the CAPM. Assuming the risk-free rate of interest is 5 percent. Using a 9 percent risk premium for the market portfolio.

Company BETA

Cisco 2.03
CitiGroup 1.36
Merck .40
Walt Disney .84

Can you help me with the meaning of CAPM and BETA? and if there are more abbreviations and formulas can you help me with what it means. THANKS

Can you help me with the following problem it is a True or false

RISK AND RETURN: Can you help me explain or qualify as necessary.

a. The expected rate of return on an investment with a beta of 2 is twice as high as the expected rate of return of the market portfolio.

b.The contribution of a stock to the risk of a diversified portfolio depends on the market risk of the stock.

c. If a stock's expected rate of return plots below the security market line, it is underprices.

d. A diversified portfolio with a beta of 2 is twice as volatile as the market portfolio.

e. An undiversified portfolio with a beta of 2 is twice as volatile as the market portfolio.

Can you help me with the meaning to abbreviations and formulas if used. Thank you, your help is GREATLY appreciated

##### Solution Summary

The solution answers two questions: 1) calculates each stock's expected rate of return using the CAPM, given beta, risk free rate and market risk premium 2) answers True/False questions on risk and return

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