If the required risk-free rate of return is estimated to be 4% and the expected rate of return on the market is 9%, what is the required rate of return on any risky asset held in a diversified portfolio when the asset's beta coefficient is 0.85?© BrainMass Inc. brainmass.com March 4, 2021, 5:40 pm ad1c9bdddf
To answer this question you could use the capital asset pricing model (CAPM). The CAPM equation is as follows:
ERi = Rf + (ERm - Rf)b
This states that the required rate of return (or the expected rate of return) of a risky asset 'i', ...
The solution explains and computes the steps necessary to arrive at required rate of return on any risky asset.