Explore BrainMass

Explore BrainMass

    Solving for beta in capital asset pricing model

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

    The risk free rate is 5% and the market risk premium is 10%. The Ka equals 25% and the Kb equals 20%. What is the beta of a portfolio that contains only stocks A and B if 1/5 of funds are invested in A and the rest in B?

    Instructors answer is Beta of portfolio equals 1.6

    Show steps to obtain this solution.

    © BrainMass Inc. brainmass.com June 3, 2020, 9:12 pm ad1c9bdddf
    https://brainmass.com/business/capital-asset-pricing-model/solving-beta-capital-asset-pricing-model-171387

    Solution Preview

    By CAPM, the stock's required return rate is
    K = risk free rate + beta * market risk premium
    Thus, beta = (K - risk free ...

    Solution Summary

    This solution provides calculations for betas in capital asset pricing.

    $2.19

    ADVERTISEMENT