In a small economy the market portfolio is comprised of the following three companies:
Company Shares on Issue Price per share Expected Return
A 200,000 $5.00 8%
B 250,000 $4.00 12%
C 500,000 $2.50 16%
What is the Beta of an Asset if it is correctly priced by the CAPM and is yielding an expected return of 18% when the risk-free rate is 4% and the expected market return is 12%?
See attached Excel file.
Expected Return = Risk Free Rate + Beta *(Market Rate of Return - Risk Free ...
The solution does a great job of explaining the steps to solve the problem. Step by step instructions have been provided and the response is explained concisely and clearly.