Explore BrainMass

Explore BrainMass

    Finance: CAPM

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    1: Expected Return: Discrete Distribution
    The market and Stock J have the following probability distributions:
    Probability Rm Rj
    0.27 12.25% 25.40%
    0.44 6.65 10.36
    0.29 21.30 36.57

    (a) Calculate the expected rates of return for the market and (b) Calculate the standard deviations for the Stock J.

    Work with at least four decimal places and round your final answers to two decimal

    2. Suppose you manage a $3,734,075 fund that consists of four stocks with the following investments:
    Stock Investment Beta
    A $149,100 1.10
    B $250,850 -0.91
    C $1,244,850 2.95
    D $2,089,275 0.35

    If the market's required rate of return is 13.80% and the risk-free rate is 5.95%, what is the fund's required rate of return?

    Work with four decimal places and round your final answer to two decimal places.

    3. Stock R has a beta of 0.89, Stock S has a beta of 1.97, the expected rate of return on an average stock is 11.10%, and the risk-free rate is 5.40%. By how much does the required return on the riskier stock exceed that on the less risky stock?

    4. A stock's return has the following distribution:
    Demand for the
    Company's Products Probability of This
    Demand Occurring Rate of Return if This
    Demand Occurs (%)
    Weak 0.09 -46.50%
    Below average 0.18 -10.00%
    Average 0.36 16.00%
    Above average 0.21 22.95%
    Strong 0.16 51.15%

    © BrainMass Inc. brainmass.com June 4, 2020, 5:29 am ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/finance-capm-634545

    Attachments

    Solution Summary

    The problem set deals with issues under finance: Required rate of return and risk premium.

    $2.19

    ADVERTISEMENT